Option Strategies

Options Mastery – Iron Condors Course Released! – 19+ Hrs of Option Iron Condor Training

July 16th, 2018

Click Here to Learn More About the Options Mastery - Iron Condors Course

The options Iron Condor course has been released!

This course is a big course in the making. In fact, they made it once and then I had to rework it because there was a handful of other things I wanted to include in it there were different ways to make it even better. So this is the second version of the Iron Condor course.

If you're interested to learn more about this course - or to see some sample footage and sample clips-  you can head on over to https://rise2learn.com/.

This website is where we have all of our courses.

Click here to see our new Iron Condors course

If you don't know how to trade Iron Condors, or at least the basics behind Iron Condors, it's going to be difficult to trade options because they are the fundamentals to option trading or trading options in a non-directional way along with verticals and calendars. They also encompass that realm of trades that you really should know as an options trader.

This 19-hour course is going to be on sale for about 13 more days. I'm not going to keep scrolling down to reveal the price because this video will be up on YouTube for quite a while. But if you're on the newsletter list or you're with us on our social media platforms, then you can go ahead and get this course on sale for now because we don't do sales and promotions. That often takes a lot of energy to reduce the prices then increase the prices again, and people are constantly always asking for discounts, so we instead make things fair-priced for the value of the material that you're going to get. And with 19 hours of training and 33 videos, it's an in-depth course.

It's not a you-know-45-minute-learn-everything on Iron Condor course, it goes into the heart of learning and understanding Iron Condors.

If you want to go and see how Iron Condors work, what to do, how to adjust, but also see trade examples, then this is what this course is about.

I'm going to show you a little bit on the inside

You can go to your courses page, then hit purchased courses.

You'll then be able to see and find the Iron Condors course. Hit that Watch Now button.

You'll see all these videos in here, and we also have the study guide modules that you can download. You can look at these videos are 44-minutes long, some are 27-minutes long, and you have 54-minutes long on some videos.

We typically start out these courses or these modules with a little introduction. Then we go on paper, like a lesson think of it as an educational lesson. We talked about those kinds of things, educational concepts, and then we go on screen. So you have a combination of a paper lesson and then on-screen. This is what we do throughout many of these first few modules.

We talked about:

  • the right time to get into Iron Condors, the short-term versus long-term duration.
  • How long to hold your Iron Condors
  • Iron Condors risk management
  • The price risk and the time risk and many other factors there

Here we have an hour-long segment. We get into actually looking at real trade example.

So here we'll do Amazon - broken up in about half-hour segments. We do in module 15 and Amazon part 2 on module 16.

The way that this work is when we put the trade on; we show you how we put the trade on, why we put the trade on, why we choose to strike prices that we do, how the market is acting and behaving, and then we start you out with x days to expiration.

Right now, you see the video. It's 42 days to expiration. But as time ticks forward, you'll get a review. Could be 5/7-minute review, 39 days till expiration then it could be 36 days to expiration.

The timer keeps ticking down, and I share with you exactly what's happening day by day. You can see house-price behaving; what's happening in the trade, and what are we doing if we get in trouble. Some of these trades they do get in trouble. That's what I wanted because of course I could have cut those out and put on more trades and shown you only the good ones.

But you really learn from trades when you get in trouble. From those losses or from what to do when things go against you - that's what we do here in these trade examples.

We go on Facebook here is part one, and then we do part two. We make the trade on Apple. Some of these are unbalanced or skewed Iron Condors, so they're a little warped.

We do one on Tesla; we do McDonald's iron Condor. We buy an Iron Condor MacDonnell's to show you how that works out. Caterpillar, then SPX, the Russell, and then also Netflix.

One or two of these we even take all the way to expiration. You get an insight of that - of why you make it to expiration and why the other ones we closed out early and how we pair our profits.

Then we also include a handful of bonus educational material for you:

  • An overview for the thinkorswim panel,
  • Their risk profile pictures for options,
  • How to work that risk profile area, and
  • Option Greeks

Watch the overview of the Iron Condors course


Option Strategy: Iron Condor Butterfly (Iron Butterfly) vs Butterfly

March 2nd, 2018

I want to talk about

  • How to create an Iron Butterfly using an Iron Condor
  • Create a butterfly risk profile with an Iron Condor
  • A couple of advantages and exciting things to do Iron Butterfly

Watch more courses at https://tradersfly.com/ and https://rise2learn.com/

As we go into this trade setup, take a look at the butterfly. This is what it's going to look like. Let me start this from scratch and show you how it works.

Here we have Amazon if we take a look at the Amazon chart here around 1493 and let's say I'm projecting and move down to about let's say 1400. I could set this up in a couple of ways, and I'm just going to use the 49-day option.

I'll go ahead, and right-click buy a butterfly. You can see it's all puts here. These are all puts, so I have this 1400, I have two contracts that I'm selling. And then I'll buy my wings, let's say about 30 points out, maybe 40 points.

We analyze the trade right here.

You can see our current prices is right here. As this moves, you can see we have this little curvature. The most that we make is at this tip. Usually doesn't pan out and it doesn't work out, but if you look at how this white line moves, you can see it goes outside the range.

So as time expires, you can see that we get even all the way over to about 1270 where we're still kind of profitable.

After about a month, you can see I can make about $290, but I'm risking only about $400. So it's almost a two-to-one risk to reward ratio if it moves in my favor. If it does get down, even overshoots and then slowly comes back, this graph can continue to explode right here really, and that's the power behind it. You could be up to $1,100 right here towards the end by only risking about $400 in the capital.

Even if it's not working out and then the stock hangs out and if you get out of it early enough, you're only risking about 177.

At some points, even if it's hung out here for a month and didn't also go up, you just get out at maybe 50 bucks where you're profitable like a scratch trade.

That's the way the trade works.

Adjusting a butterfly's a little tricky for some people, they believe it's a bit tricky, and they're more comfortable with Iron Condors.

Let me show you how this works with an iron Condor

Typically, when you set up an iron Condor, it's going to be very similar. Let's say we sell an Iron Condor. Most people think of Iron Condors as pretty much looking like this. You have kind of two verticals on each side. This is what most people do to set up an Iron Condor. You're trying to confine the prices inside this range, and then trying to get them to expire.

The curvature still kind of works in the same way as a butterfly. You still have that curvature that works and functions with time decay.

The main difference here though is you have these two points that are spread out. What you could do is bring these points into the center right here. When you bring those in, that creates your Butterfly.

The main difference is one you have puts and calls and the other you have called in or just puts.

You can see that on this one, the curve is a little bit set up okay whereas on this one just because the market's not open yet, the option prices might be a little bit skewed up until it the opening bell. Otherwise, you know it works in a very similar way. It's the same thing.

If you're wondering which one is better, no one is better than the other. But I find that some people they like adjusting the Iron Condor Butterfly a little bit easier because then if something happens what they'll do is they may move the call side right here. They'll take the call side off and move it over a little bit. So, they start adjusting it that way because you can change the vertical. It may sound a little easier.

The same thing, if it starts overshooting, you take this side off and then you'll readjust it by putting on a new one further out.

That's one way to think about it, but otherwise, if you like to play with it with an iron condor, you can do so. Sometimes getting filled in it is also a little bit easier because maybe you're out of the money and the money on some contracts.

But usually, if you're trading liquid vehicles, it's not a problem. Overall, it's just a different way to do the setup. Just which one you feel more comfortable with. But I want to share with you this variation because for some people adjusting makes it easier. Contract-wise, you're not paying anything different because here you're using four contracts here you're using four contracts, it's just that this one is all puts and this one is puts and calls.

Which one is better may just depend on your personal preference. There's a little more flexibility here; I'd say, with the Iron Condor Butterfly just because you could manipulate things a little bit differently.

Option Strategy: Buying a Directional Vertical Spread (Bullish & Bearish) on Apple

February 16th, 2018

I want to show you a little strategy as far as vertical spreads are concerned, so that way you can see how to construct one. Keep in mind it's not a recommendation to do this, to buy or sell or trade any stocks or securities. It is to give you some insight on what you could do when it comes to options.

We're going to take a look at a bullish and bearish vertical spread as far as buying goes when we look at Apple.

First off, let's look at the chart of Apple.

If you use technicals to get a little insight and idea of projection directionally of where the stocks are going to go, you could this stock is now potentially above this 165 level. It's going to go a little bit higher and continue in that motion. If you believe that, great. If you think it's a bit overextended, in that case, you would maybe put on a bearish vertical spread.

We're looking at two different approaches depending on which way your bias is on the direction. These are directional bets; it's looking for a trend, so the idea that this is done.

Let's first do an upward movement on construction for the upside. This would be a bullish vertical spread. The way that it's set up is let's go ahead and pop in our ticker symbol right here, go ahead and put in Apple. As we go into Apple, let's say we want about 60 days until expiration - so give us 60 days, what I'll do is I'll go ahead and do a 180. We'll buy a single contract here, I'll analyze the trade, and you can see this gives me unlimited upside.

So now the downside is I'm paying 365, $3.65 to open up this spread, to open up this option contract.

What to do to reduce that risk?

I'll go ahead and sell one at a higher level, so let's say it's going to go higher probably but I don't think it'll get to 210 and even if it does go to 210 it won't work beyond that much further.

So, I'll sell one over here, and this helps offset the price. We'll sell a single. It helps offset the cost of the cash that I have to pay for that initial amount.

Let's say you usually pay 365, $3.65 - that's your max loss, but if you add this in, let's say the one that you sell, now you're only paying 342 so far you still have some excellent upside room. Your potential to make $2663 on that movement for risking $337.

Now, if you believe it won't go as high and you want to bring that in a little bit sacrifice a few your profits, you could bring this in a bit of bit slightly to the two hundred. Instead of paying that 360, you're only paying about 305. Again, if I bring it in even further, let's say to 190 on my vertical spread, you can see how I'm only paying $234 at expiration to make about $772 potentially.

You're almost looking double your investment or margin amount because you're bringing in credit here of a $1.26 and you're buying for $3.55. The difference between those two is what you're left which is the $228.

In this case and scenario, the stock does have to move to about 190 or higher at expiration. If it runs somewhere in between there, you still make about $402 because that's expiration.

Can you get out of this before expiration?

Absolutely! The white line is your T+0 line, so you could still get out before expiration.

If it goes to 220 tomorrow, you can still get out of it.

If you bought a single at 250, you would have made about $6000. In this case, since we're selling one right here at the 190, it caps our potential win. But keep in mind, how often is the stock like Apple going to explode to 250 within sixty days? You're looking for a massive movement, and the chance and the probabilities of that is slim.

Option Strategy: Diagonal Spread Basics + Setup on Amazon

February 9th, 2018

I would share with you how to set up a diagonal trade - meaning a diagonal options trade. That way you can tweak your risk on Amazon.

We'll take a look at Amazon - how to set up a diagonal and why you may want to choose to do a diagonal. I like the foundation of the diagonal from looking at a calendar spread. If you're familiar with calendars, diagonals are somewhat similar.

Keep in mind. It's all based on selling premium. When you sell premium, that's really what you're doing. You're the first premium of sale and then what you're doing is you're buying protection to hedge or reduce your risk. When it comes to diagonals, you're buying it later out in time, just like with the calendar, and that allows you to adjust your risk.

We're going to take a look at Amazon in our trading panel. Keep in mind this is just for educational purposes. This is not recommendations to set up this exact trade. You might be watching this video sometime in the future, but I want to show you how to construct it.

First, let's take a look at the market, and you can see we've had a massive down move here just even today on the SPX down a hundred points. I'm not saying you want to do this right away, what I'm saying is let's take a look at how to construct one and when the time is right, you can make tweaks and modifications.

With that in mind, you might want to allow things to digest if you're watching this video the minute it's out or available.

Anyway, when we look at Amazon, you can see we're starting to pull back and sell-off. So, let's say, I'm looking for this to go a little further. I could say this is going to go down to about 1200, that's my goal and thought process. Let's say it topped out. I want to be in the trade for maybe 15/20 days, it could be 10, depending on your time horizon.

But here's how you go ahead and set up and construct the diagonal.

I go into the March ones or the March 18, which is 36 days out. Usually, what you do is you construct about 50 of these different strikes. Let's do 1340. What I'll typically do is sell a single, we'll analyze the trade, and now you could see when you sell a single you have a pretty much-unlimited risk when the stock goes down.

Then what you need to do is if you go in and buy protection, go ahead and buy a single over here and now I'll analyze this because I want protection. You could see right here. It creates kind of a funky little graph that looks like this. This would be a calendar because it's the same strike price. It's the same strike that I've chosen, so it would be considered a calendar.

I could go ahead and enter this as a calendar trade together, or you could do it individually.

If we go to March, buy a calendar, analyze the trade and we have the March 16th and the April 20th. There's our calendar trade, and you can see it looks very similar. It's just a little bit closer to the white line, and that's because we're doing it as a spread. It makes it a little bit better actually.

If I'm bearish on the position, I could go ahead and change this to custom. So instead of a calendar, I could go ahead and shift one of these. Instead of going from 1370 and 1370 - selling one and selling the same one, I could switch this to 1360, and you can see how it starts to rotate it.

I could go ahead and go the other way, and this will go 1390. You could see it shifts the other direction. This is diagonal so that I could go to 1400. I could go ahead and tilt it a little bit more. I could go ahead and tweak this based on my risk of how bearish I want to be.

Option Strategy for a Major Stock Market Crash in 2018! – Butterfly

January 26th, 2018

In this week's video, what I want to do is share with you how to hedge for a stock market crash in 2018. Of course, you could modify some of these variables. I'm not saying there's going to be a stock market crash but those of you that are looking at things that may be a little bit overvalued, things may be stretched a little too high.

How do you invest a little amount of capital but still potentially profit from a downside move without exposing yourself?

That's what we're going to cover, and today we're going to talk about a little bit about the butterfly spread now.

Let's dig deeper into our butterfly spread

Looking at our trade grid here, thinkorswim platform, we'll do a butterfly spread strategy here on the SPX to give you some context of where the market is.

The question is how much of a hedge and how much protection do you want or how much of a move do you think we're going to pull back if you are bearish or if you're looking to protect yourself?

Let's take a look at setting up a spread on the SPX. You can, of course, set this up on the SPY but the SPX is a little more significant.

What I'm going to do here is go into the trading grid, we'll go in and populate the SPX.

It comes down to how much time you want. In this example, I'm going to go ahead and do 48 days, or I could make 83-day option contracts.

If I go out at the 48 days and I'll go ahead and right-click here, I'm going to go and buy, and we'll do a butterfly. We'll analyze the trade.

You can see how this is set up; it's a little funky. Let me make some adjustments for it so you could see what's going on here.

What we're doing here with a butterfly spread is we're selling two at the money or two contracts for the put side. You could do it on the call side if you want but we're selling too at the put side, and we're buying our wings for protection. That's the basic strategy in this butterfly spread.

I'll go ahead and spread these out on the wings, and you can see that the wings here don't have to be perfect.

You could see I have this butterfly spread and it looks like a weird kind of tent, a triangle tent.

The way that this works - one of the exciting things with butterflies, is because you're selling such sweet at the money or near or close to the money strike prices, that with time as you move the time forward you can see that we get outside of our range right here for profitability. That's one of the great things about this move.

So, as time moves forward, it continues to get closer and closer to this tent. Now, the most that you would make at that peak $3500 on an investment of 410. So, you're making eight times on your money. That's quite a lot, so you're not risking too much to be able to profit.

You can see as with time, if this doesn't even work out in your favor - if the market stands still, you're still up about a $154 on March 5th. If it moved higher, if the market moved to 2900, you're down about $280 for that hedge or for that insurance or for that strategy.

It could continue moving higher, and then you're out $400 here - of course, prices are shifting.

But with time, what happens is this gets closer and closer to expiration. You can see how this curve boom explodes so as long as you give it about ten days and then the market falls. Let's not be in Disneyworld or be unrealistic. You're not going to hit it perfectly at the peak and make your 3500. Let's be real and let's say within a week or two it starts to sell off while you make about $500 on about $400 worth of risk. So that's a pretty good risk-to-reward potential. I mean you're making doubling your money up based on the risk that you're putting on.

You can see how we're widening it a little bit longer but your potential to make more money increases. You make a little bit more okay from this strategy than from the last one because you're going a little bit wider out. So the risk of it working out in your favor is less the chance of it working out in your favor is less so you make a little bit more.

What you could do right here is again and you look at it is it moves right there. You're already making $800 whereas the last ones like $500.

You actually can be profitable if it goes past your point even at 2600. You're still making money and also if on the outside over here you're again making money. So don't think of just the expiration curve, look at the white line which is your today line.

You can see how it works and it operates right there in a couple of weeks time. You could. If you had a hundred point move down, you could make about $1,500. Even if it blew past it, you could make $700.

Remember, nobody's going to give you anything in the market, so that means this leg went down. So you're risking more on capital here. That's 1160 because before it would be only 385. And over here 395. But now, if I move this up, I'm risking only 155. If the stock stands still but about $1000 on this side but you even with time, you can see continues to grow and grow and grow with the time decay. It allows you to protect yourself against the downside move or make some good capital.

Let's say you bump the contracts up to five contracts. That means you're selling ten, protecting five on one side and five on the other. Now you're talking about risking about $700. If we sell off right away, you make about $380, now this is, of course, doesn't account for the volatility.

If then you go ahead and do a few weeks of time decay, then you're up about an 1130 and then again a few weeks later up about 3600, but if it just stands still while you're risking your 750 to make about your 3,000 and indeed at the peak, but you can make about $19,000 dropping it back down to one contract.

This is really how it works on a basic butterfly spread, and how you make a low-risk investment for a downside move in a butterfly.

Of course, you could adjust this even further and go to 2785. Now I'm risking only $50 for that same kind of potential, but of course, I'm risking on this side $1545.

I wanted to share this strategy with you because this allows time decay to work in your favor. Then with time, you could see that for that $60 - if you had a hundred point move, you're making about a thousand bucks.

Keep in mind they'll margin you out the 1,500 because that's the most you could lose in your broker account but overall if the stock stands still you're out forty bucks which are not a lot of money.

So, in either case, this is a helpful strategy if you're expecting a nice big downside move to hedge things without risking a lot of capital. I didn't cover the volatility side of the butterfly here. I just wanted to share with you the strategy and some of the basic setups for it. But you could see how you could play with this to create some interesting plan for a downside move.

Be open. Play with this first and again don't forget to account for the volatility because you will have to take those things into account when trading options.

Ep 164: Option Leaps: Long-Term Investing Strategies + Examples

December 7th, 2017

Listen to the Podcast

Subscribe to the podcast

iTunes Stitcher

We're going to be focusing on option LEAPS - Long-term investment strategies to make more with less money.

Our key focus in this video is all about options. It's about taking your capital using options for longer-term investments. Can you still use some of these strategies and concept I share with you on a shorter timeframe? Entirely because of the power of leaps.

You'll have a few disadvantages, which I'll talk about in the video. But the goal here is if you're trading or investing in stock only at the moment, and you're holding things for six months, a year, to three years, I'm going to show you how to do that with less capital by trading options or option leaps.

You might be wondering, what are leaps?

Leaps are long-term equity anticipation security that's what the definition stands for as far as abbreviation goes. But really, what it comes down to is it's just a long-term option. It's holding things long-term.

What does the long-term mean?

Long-term can mean six months, a year, two years, five years. The standard definition is typically longer than a year.

Some disadvantages to trading option leaps

  • The higher total costs you're going to pay because there's more time premium baked-in.
  • Change in price makes you less money because you usually have a smaller Delta. Also, when you look at the setup of the spread, the volatility can also impact this. So that actual change in price usually makes you a little bit less money. It's not something that I worry about too much because you can tweak these options to where your Delta is a little bit more in favor of what you're looking for but in general, the change in price makes you a little bit less than if you buy an outright stock.
  • The bid-ask spread can also be a problem because you're going further out so they can be a little bit wider. You may need to play around on getting into these positions. You don't have to get into these positions right away. You could get into them one to four days later because you're looking for longer-term holds.
  • The volatility can shift and create an issue with the position. This could be a volatility inversion, meaning you're on the wrong side of volatility because options are priced in part due to volatility. If you get in on a spread and the volatility goes against you, even though the price is going in your favor, but volatility is going against you, you're losing a little bit of money.

There are ways to counteract that as you get more into advanced options strategies and learn more about options.

Let's look at some advantages

  • It's a lower cost for the time you hold. If you have less capital, you get to make the same amount if not more with less capital.
  • There is less time decay when it comes to going further out. If you're looking at buying single option contracts or you're looking for precise movements in time or if you've been burned with time premium in the past with options, so there's less time decay that could be a good thing or a bad thing depending on the type of option trader that you are. If you're looking to capitalize for time decay, it's not a good thing. But you can still make some time decay from it. But if you're looking for movement and you need it to move, you don't have as much time decay. It doesn't work against you, but you can set it up to where it works for you.
  • There's a more extended life force the strategy to work which is why there's less time decay. Because there's less time decay, you get a longer lifeline for things to work out in your favor.
  • You can still make money from time decay when you're trading option leaps or longer-term options. It's just that usually you don't make as much.

You can use option leaps in all sorts of ways. You can use them to make some money from time decay. It can reduce your risk in the sense of using less of your capital to make more money, or you could use less of your capital to make the same amount.

Do you have to hold things all the way till expiration, let's say a year to three years later? No, you don't. You could hold the trade for a month. You could hold it for a day or two. It's really up to you depending on how long you hold the trade.

Keep in mind that there are also some problems that can occur like the volatility problem that it could put you on a little bit on the wrong side of the trade. Typically, if you're looking to hold a stock for a year or two years and it's not making you money, you'll probably get out now.

Yes, it makes you dividends with option leaps. Again, if you're holding it for six months to a year and it's not making you money now, you don't get the dividends, but you make a little bit on time decay.

Let me show you on screen some strategies with option leaps

How to set them up and what you're looking for. That way you can see how you make money with this rather than trading the stock. You could trade option leaps and hold on to stocks for multiple years without even getting into the stock.

Of course, you don't make those dividends. If you're a dividend investor which you can make money from the time decay, so it is the juggling effect depending on what pros and cons or what you're looking for your risk levels and your risk tolerance.

Let's go to the screen now the first thing I'd like to look at is some single options

Here we are on screen and what I'd like to do for you is to share with you some insight on a stock. Typically, you could do this with anything that trades options. But I like to prefer to do that with stocks over 40, 50 even a hundred dollars because there's more time premium baked thin.

If we go on screen here and we take a look at Amazon which is a vast stock. We'll buy, let's say 100 shares of stock, you're looking at a price of 1161. When you do this, and you go ahead and look for putting that trade on it's going to cost you around one hundred and sixteen thousand dollars okay that's the total for your trade.

If we look at analyzing this trade, you can see that using about a hundred thousand dollars for a delta of 100 - that means for every dollar move, the stock goes up. You make one hundred dollars.

If it gets to eleven seventy, you make about nine hundred dollars, and I'm doing this based on the mouse movement right there. As I move the mouse up and down, you can see the profit and the loss.

If we go into an option contract, let's say we go 40 days out and I'm looking for an option contract around $1300 as the strike price - go ahead by a single, analyze this trade. Keep in mind, and time decay is an issue and a problem when you're making single contracts. You're risking about $305 at expiration. That's the amount you're risking. You need the stock to move a couple of hundred points before expiration, and you could make $300-400. Of course, if it runs quickly even $1000 - 2000 at expiration but it needs to move that stock has to move really

As we look here on this panel and we start looking at evaluating this contract, that's one contract one hundred shares. I only have a delta of seven. So when you compare this to stock, you have a delta of a hundred. Whereas with an individual you have a delta of seven.

Can you increase the Delta?


You could get a little bit closer. If you go in even tighter or closer to the current price, you got a twenty-six Delta.

Though I'm risking about $1695, not quite a $100,000 pretty much it's still a decent amount for a lot of people out there living off of a few thousand dollars a month. This could be a lot of money.

If we're trying to match up the same Delta here and we go to 100 Delta, let me make this about 25 Delta. Let's see if I could get it around 26 Delta is about as close as I could get. I'll need to trade about four of these to get a hundred Delta. Now I'm risking $5,620 to make almost $27,000 potentially.

If it happens right away today, I will make $26,000 at expiration.

If I compare this to the stock and I look at it this way - at $1,300 on the strike price, will make me $13,000 almost $14,000.

Here we make about 30,000 on or 26,000 on about 5,000 in the capital. So, which one's bigger? You're risking 5,000 to make 25,000 potentially, or you're risking a 130,000 to potentially make about 14,000 to make half of what's on the options.

You could see the power behind it.

The big issue is that option contracts are going to expire because every single day it costs you about a $128. You lose money every single day. This only continues to accelerate. It ramps up, it then becomes 135. You can see right there because we're just out about forty days. Again, continue to increase the date, and you're almost down three grand out of your five and a half grand. You're practically down half on your capital. Whereas with a stock, you could hold it for a long time.

What do you do in this case?

This is where option leaps come into play. This is the power behind them. If I go ahead and look and close down all these contracts, you can see you can get as far into options here in June, July, January. You can get the next year, and it's 500 days, 400 days, out 700 days out. You could get out quite a bit regarding time.

Let's say we're going till September 2018 - which gives me about 288 days

When we look at the option strike prices, we could still do 1300. It's going to cost you a lot more because look at this, it's $63 per contract, whereas the 40-day premium or the 40 days out is going only to be $2 a contract because there's more time premium baked in.

Look at the price difference - 94 versus 13. That's huge.

When we look at it for contracts, cost me 5300 for the January 18 which is only about 40 days out. If we go into a leap, it's going to cost me about $37,000. So, a lot more money but it's still not $116,000 as you would be with a stock.

Keep in mind. Our Delta is much higher. The Delta here that we have is 191, so you don't need as many contracts. We can just make two contracts to get the hundred Delta, and that'll put us only at 18,000 dollars in capital that we need.

so still more capital about eighteen thousand 19,000 capital compared to five thousand dollars in capital so about three and a half three point two times more in capital

Again, if you look at now your Delta, it's still roughly about a hundred, but your theta drops to 41. You're still losing $41 per every day but it's not 128 dollars every single day.

You get to save more money by holding these a little bit longer.

So again, if the stock gets to 1300, what's going to be your profit?

You're looking at about $1600 in profit.

You're not going to make as much as the 40-days out because merely because of the Delta effect the contracts, the volatility. All those things and you're using more capital, but you have less time premium risk.

As you start getting into verticals, this is where the power becomes with options.

On a vertical, I'll go ahead and buy a vertical. Analyze the trade again. We're 43-days out on this one and what we'll want to do here is we'll go and let's say we still project somewhere around 1300 but I'll go ahead and do the vertical something like this.

This puts me current prices at 1160. The vertical is that 1250 and 1220.

Here's the nice thing about verticals is you reduce that time value, time premium. Again, you're down to 10 now the Delta is only nine. If I want to bump that up to about a hundred. I'm using the capital around $5000.

My potential here is $50,000, but I need the stock to move. Your theta is still around a hundred and thirteen, so one hundred and thirteen per day, so you're still losing money per day on this vertical. It's not a significant difference on the stock.

What's the big advantage to this though?

You lose a little bit less but as this gets in your favor because you have a delta that picks up and a theta that actually works positively for you.

You can see that white line which is the current line or today's line gets closer and closer to the green line. The green line is the line at expiration.

In this case, I don't think stocks are going to explode to the moon all the time. I think they're going to move, but I don't think they're going to move to an extreme level.

A basic level is why we cap it because this reduces our risk on the time decay in the theta and then the theta then becomes positive as we get into that favorable more position.

Now, could I go ahead and sell put verticals instead?


I could go ahead and sell put verticals and be more positive theta. That's another approach but keep in mind that we're still in January and we still have that time decay.

If we look at this, we bring the date back to today. We carry the price back to our price, and our Delta is right at a hundred. I'm using about $27,000 in the capital.

As you go further out in leaps, you're using more capital because there's more time premium baked in. But look at my theta, it's only 16 per day rather than 130 on the other one on the single. When you look at the single 130 or 113 on the other shorter term vertical, you're down to 16. So it reduces that theta even more so and you still have your hundred Delta.

Can you make more with a shorter term option?

Yes, but the time risk is against you. You can use less capital, but you have less time.

If you're looking for making money with the theta because once it gets into here, my theta is positive 13.

As I continue to move this date, it becomes 14. We get into 30 per day then we get into June you're up at $60 per day. On the theta, you're up to 133 thetas per day. That's from time decay.

Imagine you're getting a $133 per day from that option contract which is probably going to be way better than a dividend on the number of shares that you could buy for $27,000.

That's the power behind it. You're making twenty-seven thousand dollars on twenty-seven thousand dollars by June or July with using a lot less capital and risking less on the time premium.

That's one good way of looking at it. You can see that you can hold on to the stock for an extended period without having that option time value problem.

Can I get into this use twenty seven thousand dollars and let's say this stock starts to wiggle around a little bit wiggle around and I'm starting to lose money on theta and I'm down about let's say three hundred dollars I could just get out of it right then and there and say hey something doesn't look right it's starting to sell off an amount that's another approach you could take now.

If you're a longer-term investor, you probably don't do that. In this case, you could have a much wider pullback to 1,100 or even 1,000 and then allow that stock to continue to run in your favor because you have the time value.

You might not be so hot or interested in the fact that you're still losing money on theta but what you could do is you can convert this vertical that you're getting into the calls. You could go ahead and sell the puts so you could go ahead and sell a vertical here on the put side. Now, you'll be positive on the premium.

Do you want to use more capital and have no time decay, where time decay works in your favor or do you want to use less capital but time decay works against you?

You could do a split position here, and you could do something along the lines of getting in the middle.

In this case, you're using less capital. You're using maybe only four thousand in capital to make two thousand potentially. Let's bump it up, so our Delta is still a hundred or right around a hundred. The problem is when you go further out remember time decay doesn't help you as much, it is in your favor. If you're a buyer of an option, but here you're a seller of options, so you only make 18 on the theta.

You're still in a favorable position. You can have that stock going down so you could even do leaps. In this case, you don't make as much still. You're still using about fifty thousand and capital but that time decay works in your favor. You could make still twenty-four thousand dollars as long as that stocks above the 1085/1080 level at expiration.

If you're looking for long-term, you're making seventeen dollars a day just like a dividend still using about fifty thousand capital to potentially make about $24,000.

You can see how this continues to move in your favor because generally for long-term investing, you're bullish.

You can do the same thing with splitting things if you're a little bit more. Let me balance the time decay versus the risk, so again let's do a vertical. What I'll do is I'll split it right in the middle of where the current price is,

You can see I'm right in the middle.

If I want that hundred Delta bump up the contracts, I'm a fifty-fifty vertical, so I'm risking about 40,000 to make about $40,000/37,271.

You could see my time decay though because I'm almost right in the middle on that Center peak. I still need the stock to move in my favor with time, but I have till September for it to do that.

If I did this with contracts that are more recent, let's say in January, the issue here is now the time decay at the moment it works in my favor. But if this drops down, you can see I'm losing 190 right away. Whereas on September's, if this drops down, you're only losing nine dollars every day.

Again, time decay works in your favor, but it doesn't help you much. If it moves in your favor, you only make eleven dollars a day on the September and then on the January you would make 156. You'd make more in January because the time decay is going quicker in the current month.

Trade-offs where do you want to be.

Now, this is tomato-tomahto depending on your risk-to-reward. There's one last kind of strategy, I want to show you again with a long-term leap when it comes to options, and if we go here, it's called the Diagonal.

You can see this is kind of a bullish position as I look at this. You still want the stock to go in your favor. You're risking about $1700 in capital to make $2000 in capital potentially.

If you want the Delta to be about a hundred again, we'll make about seven contracts. You have time decay that works against you initially but what happens is as it moves in your favor, time decay will slowly become more favorable actually for you.

In this case, with what's happening - you're still risking about 11,000 to potentially at the peak make about 15,0000. This is not necessarily the best approach because what can happen is it overshoots your stock and you're losing money. So it needs to land there at expiration.

Can you take it off sooner?

Yes, absolutely.

What you can see is the time decay. The 10th is wider as well but the time decay also works in your favor. Your spread is 1100 to almost 1500. It needs to land somewhere here at expiration.

Whereas, the other one, you only have the spread between 1200 and almost 1300. You could see this is much much wider.

What you can do is the time decay since it's working in your favor. It continues to get closer and closer to that green line so as we get into March/April. You could see that time decay also builds.

My Delta, as I started out, was only 23 on seven contracts. You'll need to trade a little more if you continue to do a calendar.

The great thing about diagonal is we can rotate it by trading fewer contracts. Instead of 1260, which identically makes a calendar, I could go to 1240. You can see how it turns a little bit and increases my delta.

You can see how it's like a vertical. It's starting to come into more like a vertical.

There's a lot of advantages/disadvantages diagonals versus verticals that are beyond the scope but I'm trying to show you that for a long-term bullish investor, how you can still trade option leaps and you can see how you can do it with this one by just skewing and adjusting some things and the deltas close to 100. I could increase the contracts right there, and now I'm at a positive Theta. I'm risking about $47,000 to make $50,000 potentially.

Similar to a vertical, my theta is $14 a day at the moment. I do have a favorable Vega position in this case, whereas the vertical is usually a negative when you're doing verticals.

How can you skew this and adjust it?

I could move this back a little bit and let's say I go to 1090, and then I go drop this down to also 1180, and you can see I moved it a little to the so now I'm in more of a safe zone.

This reduces my Delta a little bit so I may need to trade a bit more contracts. If I wanted the same comparison, but you can see that even if it doesn't move, I make a right amount of money. If it moves up, I make money not as much as if it stood where it was because it descends a little bit.

But even if it moves down a little bit, I'm still somewhat protected for about a hundred points.

For long-term investors who are bullish because you're buying stock, this is again another approach. When you go into diagonals, you could see how I could skew it and rotate it and just shift that perspective from them rotating one way or the other.

Let's go into 1060, and you'll see the rotation. You can see that rotation happening. It depends how much risk-to-reward you want to play with. This is really what it comes down to - playing with these numbers and looking at these variations, the Theta, the Gamma, the Vega, the Delta, and how many contracts you want to trade.

I could go ahead and trade fewer contracts, but I could rotate this much more and increase it by the rotation rather than the contracts.

That's the power behind it. When you look at some diagonals, and you still make money like a dividend. If this thing stands still because you have that you and Theta make later on as it gets closer and closer to that expiration.

As you get into four or five months later, you make $50 a day, and a lot of it could be just from time decay on your capital. Of course, this does require around $40,000 in the capital, but you're making quite a bit even if the stock doesn't move.

For a longer-term investor who trades dividends typically or if you want to play the more significant stocks, this is how you do it.


I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

Join over 31,258 regular people who are bettering themselves in the stock market.

Click Here to Sign Up

This is a community that is motivated to learn & improve their skills.
Join us and get free training lessons, freebies, and exclusive promotions.

want some helpful advice?

pay per minute coaching

I am scheduling helpful coaching sessions for people who are interested in real-world advice & guidance where you only pay per session. No long term commitment required.

Learn more
This website and content is for information purposes only as Rise2Learn, TradersFly, and Sasha Evdakov are NOT registered as a securities broker-dealer nor an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Rise2Learn, TradersFly, and Sasha Evdakov cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Rise2Learn, TradersFly, and Sasha Evdakov in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Rise2Learn, TradersFly, and Sasha Evdakov accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.