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Raleigh Durham
Options Traders
Meetup
Ed Tulauskas
October 25, 2018
Copyright © Random Walk Trading, LLC.
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Random Walk Trading does NOT offer auto trade. Case studies being provided are
historical examples illustrating how a particular equity, index and options strategies
could have been implemented. Random Walk is not providing students with real time
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FOR EDUCATION PURPOSES ONLY
This session is recorded. The recording and slides for this session will be available for you on our video
center a few hours after the session.
Agenda:
Why SPX Options?
Basic Example – Bearish Risk Reversal
Review a recent example
Q&A
Trading SPX Weeklies
Why SPX Options?
1. Highly liquid
2. Tax Efficient: 1256 contract treatment
3. Many strikes to pick from
4. Weekly expirations (Monday, Wednesday, Fridays, Quarterlies, Monthly)
Basic Example
Bearish Risk Reversal
First let’s look at an option chain
DTE: 30 days or
45 days?
Strike Width: 5 or
10 or 20 points?
Do you want
credit with that
burger? (i.e.
Butterfly)
Venus Butterflies (long vertical
width > short vertical width)
Let’s look at the Put Broken Wing Butterflies and 1-3-2 Butterflies Compare the BWBs vs the 1-3-2’s:
How much more credit do I get for the 1-3-2 Butterfly? Am I comfortable with that additional risk? What is the VIX?
And let’s not forget the call Broken Wing Butterflies and 1-3-2 Butterflies
What choices do we have on the call side? How do we want to pay for the put side? The markets don’t take
credit cards. The trader has a delicate dance between the put side cost vs call side while controlling margin.
We can create a bearish risk reversal using butterflies
Trading SPX Weeklies
Lets review a recent class example
Trade 46D: Friday 9.21.18 We wanted to create a bearish risk reversal created with butterflies vs verticals
Friday 9.21.18: We get our put fly filled Our directional put fly gets
filled for $1.90, 5 contracts
or $950 total debit.
Friday 9.28.18: A week goes by. No fills
Monday 10.1.18:
We get filled on 10 contracts of the 2820/2780/2730 put butterfly for .25 x 10 or
$250 total debit
So capital invested so far:
$950 put butterfly
+ $250 stacked put butterfly
$1200 Total capital invested
Wednesday 10.10.18: The BIG move
The SPX and the markets made a
monster move to the downside
today. Since we did not get filled
on the $2.50 credit call bwb we
changed it to a 2915/2950/3000
call bwb for $1.00 debit, 5
contracts and got filled. We also
got filled on selling 2870/2865 put
spread for $4.00 x 5 = $2,000 total
credit (80% max profit on the
spread)
Wednesday 10.10.18: What’s next?
We are going to setup
entering selling the next put
spread the 2865/2845 for
$18.00 x 5 or $9,000 profit.
We will also enter buying the
2900/2915 call spread for .20
x 5 or $100 total debit. If we
get filled on both tomorrow
we will have…
Thursday 10.11.18: Goal / Next steps
The SPX is trying to keep
afloat and started to move
higher we changed the put
spread (-2865/2845) to
$15.50 to get filled and lock
in some profits, although
could have got the $18.00 by
end of the day but we never
can tell what the markets
will do. With the move down
we got filled on the call
vertical for .15 (2900/-2915)
Friday 10.12.18: Where are we?
The markets appeared to hold their
own. Experienced a power loss
from hurricane Michael, a powerful
and fast moving Category 4 storm.
No fills today but entering a sell the
next 20 point ITM put vertical for
$18.50 (-2845/2825). The weekly
SPX chart shows a bounce, at least
for now, off the 2743 level
Friday 10.12.18: Our position
Tuesday 10.16.18: One Day Left
The markets continue the downward slide, enough to fill a portion
of our ITM put vertical. We got filled on selling the 2845/2825 put
vertical for $18.80 credit for a total of 5 x $18.80 = $9,400 total
credit. We will setup in selling the next ITM put vertical
Wednesday 10.17.18: The final day
The last day of expiration for
this day and what a day. We
cancelled and replaced the ITM
put spread to sell for $13.50 OR
if the SPX rallied above 2800.
Well, the market rallied in the
afternoon and triggered the
order to get filled @$8.40
credit or $8.40 x 5 contracts =
$4,200 total credit
Setting up some OCO orders (both short and long side)
We also setup an OCO for the short put vertical. Either we buy back the put vertical
for .25 debit or a couple points below the morning low if the market deteriorates to
help prevent our profits from evaporating.
After the dust settles
In the afternoon the market
rallied and triggered to buy
back part of the short put
vertical for .25 (the
2760/2730 put vertical).
Remember since we sold a
good portion of the long put
vertical that increases the
downside put margin. With
the higher VIX, the market
spreads can get pretty wide
- so stick to verticals if at
all possible.
Analysis
5 Debits:
5 Put Butterflies (2870/-2820/2780) = $950
10 Stacked Put Butterflies ( 2820/-2780/27300 = $250
5 Call Butterflies (2915/-2950/3000) = $500
5 Call Verticals (2900/-2915) = $75
10 Put Verticals (2760/-2730) = $250
Total Debit: $2,025
5 Credits:
5 Put Verticals (-2870/2865) = $2,000
5 Put Verticals (-2865/2845) = $7,750
5 Put Verticals (-2845/2825) = $9,400
5 Put Verticals (-2825/2815) = $4,750
5 Put Verticals (-2815/2800) = $4,200
Total Credits: $28,100
140 Contracts x $1 per contract = $140 commissions
In Summary
At the end of the day, we netted out one of our most
profitable trades for 2018.
ROI = $26,075 / $9,525 = +274% ROI in 26 days
Ed’s Master Combo Package
ADVANCED GUIDE IN OPTION TRADING
ADJUSTMENT
+
ADVANCED OPTION TRADING GUIDE ON HOW TO
THRIVE IN A VOLATILE MARKET
+
ULTIMATE OPTION TRADING GUIDE TO LAYER
SPREADS
VISIT WWW.RANDOMWALKTRADING.COM
/POWER-COMBO-2018
Or
Call/Email the office @ [email protected] or
1-855-798-0008 (US) or at 1-302-250-4611 (Outside US).
Join Random Walk Today!
Two webinars per week (Tuesday and Thursday)
Tuesdays: we review open positions
Thursdays: dedicated to SPX weekly strategy
SMS Text of trade activity
Chat room
Weekly trade write ups of open positions
Just $60 / month (includes SMS text messaging)
Any questions? Email Ed at [email protected]
Thank you! Have a good evening!
The recording and slides for this session will soon be available for you on our video center. If you have any inquiries, feedback or concerns, please feel free to call us at
1-855-798-0008 (US) or at 1-302-250-4611 (Outside US). You can also send us an e-mail at [email protected] or [email protected] anytime.
