Sheridan Top 5 Mistakes When Creating Monthly Income Feb10

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Dan SheridanDan Sheridan

TopTop 5 mistakes when creating monthly5 mistakes when creating monthly

incomeincome

FebFeb 18,18, 20102010

Sheridan Options Mentoring, Inc.www.SheridanMentorin .com



Disclaimer Disclaimer

The views of third party speakers and their materials are their own and do not necessarily represent the

views of Chicago Board Options Exchange, Incorporated (CBOE). Third party speakers are not affiliated

with CBOE. This presentation should not be construed as an endorsement or an indication by CBOE of

the value of any non-CBOE product or service described in this presentation.

Options involve risks and are not suitable for all investors. Prior to buying or selling an option, a person

must receive a copy of Characteristics and Risks of Standardized Options. Copies are available fromyour broker, by calling 1-888-OPTIONS, or at www.theocc.com. The information in this presentation is

provided solely for general education and information purposes. No statement should be construed as a

recommen a on o uy or se a secur y or o prov e nves men a v ce. uppor ng ocumen a on or

any claims, comparisons, statistics or other technical data in this presentation is available at Sheridan

Options Mentoring ([email protected]). Past performance is not indicative of future results.

Parameters relating to past performance of strategies discussed are not capable of being duplicated. Inorder to simplify the computations, commissions, fees, margin interest and taxes have not been included

in the examples used in this presentation. These costs will impact the outcome of all stock and options

transactions and must be considered prior to entering into any transactions. Multiple leg strategies

involve multiple commission charges. Brokerage firms may require customers to post higher margins

than the minimum margins specified in this presentation. Investors should consult their tax advisor about

.

reflect the views of Chicago Board Options Exchange, Incorporated (CBOE). CBOE is not affiliated with

Sheridan Options Mentoring. This presentation should not be construed as an endorsement or an

indication by CBOE of the value of any non-CBOE product or service described in this presentation.

PagePage 22@ Copyright 2009. All rights reserved.



Point #1: NoPoint #1: No Plan or RoadPlan or Road MapMap

Financial edge to start a monthly

Probabili ties or Decay?

What strategies to trade? Which vehicles?

Risk Management Plan for each strategy? What todo when trade goes bad?

Key: Do you have a passion? Do you think it’s easyor hard to be good trader?






One Day

Standard Deviations (Sigma)Standard Deviations (Sigma)

Price 100.00$

Volatility 19.1%

1 σ 1.00$ 99.00$ to 101.00$

2 σ 2.00$ 98.00$ to 102.00$

3 σ 3.00$ 97.00$ to 103.00$


FREE STANDARD DEVIATION CALCULATOR AT:

http://www.sheridanmentoring.com/sigma





Portfolio PlanPortfolio Plan

,

Diagonal SpreadsOTM ButterfliesVertical Spreads

Calendar SpreadsDouble Calendar SpreadsDouble Diagonals

Directional CalendarsLong Straddles

ATM ButterfliesCondors

LEAPSCovered Writes/StraddlesLong Stock

Long Term Calendars




Income StrategiesIncome Strategies

Calendars and Butterflies focus on Time decay

Iron condors focus on probabilities




Big Picture PortfolioBig Picture Portfolio-- Sample PortfolioSample Portfolio

$500,000 50%, 40%, 10% Mix$500,000 50%, 40%, 10% Mix $250,000 Long Term Strategies ( 180 days or

longer)- Collars, Covered Writes, Long Stock, LongTerm Calendars

$200,000 Monthly Income Strategies ( 25-60 days)-Condors , Credit Spreads, Calendars and MultipleCalendars, Butterflies, Double Diagonals

$50,000 Speculative Strategies (1-90 days)-Straddles, Earnings Plays, Long calls and puts,Debit s reads Reverse Calendars Back s reads

How would I make my percentages?




How to Scale toHow to Scale to LargerLarger TradesTrades

Month SizeLive

Trades

Per MonthMonthly

Profit

1‐6 $10,000 4‐6 Break even

7‐12 $20,000 4‐7 at least 3%

‐ ‐ ‐,

19‐24 $80,000 4‐8 4‐7%




Sample PlanSample Plan-- $10,000 Portfolio$10,000 Portfolio

Monthl Income NonMonthl Income Non--DirectionalDirectional $1000 Cash

$3000 Condors

$3000 Butterflies

$3000 Calendars and Double Diagonals




Points #2Points #2 andand #3#3 combined:combined:

Plan and Risk Mana ementPlan and Risk Mana ement Profit target 15%?

Max Loss -20%?

This is a business. We can’t make $1000 in a good.




RUT Butterfly example to demonstrateRUT Butterfly example to demonstrate

Plan and Risk ManagementPlan and Risk ManagementDate: 1/19/2010Date: 1/19/2010 RUT Price: $649.07RUT Price: $649.07 +11.11+11.11

Options Price IV Delta TradeFEB(31)

a s . . . +

650 Calls $14.00 19.3% 51.5 ‐4

610 Calls $42.80 22.9% 85.6 +2

Margin 3,290$Delta -11.2

Gam ma -2.4

eta .Vega -123.9




RUT ButterflyRUT Butterfly

Date: 1/19/2010Date: 1/19/2010 RUT Price: $649.07RUT Price: $649.07 +11.11+11.11





Date:Date: 1/21/20101/21/2010 RUTRUT Price: $Price: $628.40628.40 --11.2111.21

Options Price IV Delta Trade

690 Calls $0.65 19.4% 3.5 +2

650 Calls $6.00 20.0% 27.8 ‐4

610 Calls $26.60 23.0% 71.8 +2

Margin 3,290$

Loss (240)$

Delta 39.5

Gam ma -2.0

Theta 21.7

Vega -81.7





Date: 1/21/2010Date: 1/21/2010 RUT Price: $628.40RUT Price: $628.40 --11.2111.21




RUTRUT Butterfly AdjustmentButterfly Adjustment

Date: 1/21/2010Date: 1/21/2010 RUT Price: $628.40RUT Price: $628.40 --11.2111.21Options Price IV Delta Trade New

FEB(29)

. . .

650 Calls $6.00 20.0% 27.8 ‐4610 Calls $26.60 23.0% 71.8 +2

-. . .620 Puts $13.30 24.4% -37.9 ‐4

580 Puts $4.40 29.2% -10.5 +2

Delta 39.5

Gamma -2.0

e ore us ng

Delta 6.7

Gamma -4.0

er us ng

Margin Before Adjusting 3,290$

e a .Vega -81.7

e a .Vega -181.0


Margin After Adjusting 6,170$

Loss (240)$



RUT Butterfly AdjustmentRUT Butterfly Adjustment





RUTRUT ButterflyButterfly

Date:Date: 1/22/20101/22/2010 RUTRUT Price: $Price: $617.01617.01 --11.3511.35

Options Price IV Delta Trade

FEB(28)

690 Calls $0.65 23.0% 2.0 +2

650 Calls $4.80 23.2% 18.0 ‐4

610 Calls $21.70 26.7% 60.5 +2

660 Puts $47.00 24.8% -88.8 +2

620 Puts $19.90 26.8% -50.5 ‐4

580 Puts $7.70 32.1% -15.8 +2

Margin 6,170$

Loss (660)$Delta 45.5

Gam ma -3.2

e a .Vega -140.1









RUTRUT Butterfly AdjustmentButterfly Adjustment

Date: 1/22/2010Date: 1/22/2010 RUT Price: $617.01RUT Price: $617.01 --11.3511.35Options Price IV Delta Trade New

‐

FEB(28)

. . .

650 Calls $4.80 23.2% 18.0 ‐

4 +2610 Calls $21.70 26.7% 60.5 +2 ‐1

660 Puts $47.00 24.8% -88.8 +2

650 Puts $38.70 24.8% -81.9 +1

620 Puts $19.90 26.8% -50.5 ‐4

610 Puts $15.70 27.9% -39.5 ‐2580 Puts $7.70 32.1% -15.8 +2

570 Puts $6.30 34.0% -11.7 +1

Mar in Before Ad ust in 6 170Before Ad ustin After Ad ustin

Margin After Adjusting 6,270$Loss (660)$

Delta 45.5

Gamma -3.2

Delta 4.6

Gamma -3.8


.

Vega -140.1

.

Vega -169.9









Date:Date: 1/27/20101/27/2010 RUT Price: $RUT Price: $618.42618.42 +6.26+6.26Options Price IV Delta Trade

FEB(23)

690 Calls $0.15 20.2% 1.0 +1

650 Calls $2.30 19.0% 17.0 ‐2610 Calls $18.40 22.7% 62.7 +1

u s . . - . +

650 Puts $34.60 20.3% -83.0 +1

620 Puts $14.70 22.2% -48.8 ‐4

- ‐. . .580 Puts $4.00 27.6% -14.0 +2

570 Puts $2.90 29.1% -10.2 +1

Margin 6,270$Loss 350$

Delta -2.1Gam ma -4.4

Theta 69.6


Vega -174.1




Date: 1/29/2010Date: 1/29/2010 RUT Price: $602.00RUT Price: $602.00 --5.935.93Options Price IV Delta Trade

FEB(23)

690 Calls $0.10 0.1 +1

650 Calls $0.80 20.7% 5.4 ‐2610 Calls $9.20 22.2% 42.2 +1

. - .650 Puts $50.20 -94.5 +1

620 Puts $24.70 23.5% -70.6 ‐4

- ‐. . .580 Puts $7.10 27.6% -23.5 +2

570 Puts $5.10 29.0% -16.4 +1


Delta 76.4Gam ma -3.7

Theta 58.7


Vega -117.4











Date:Date: 2/4/20102/4/2010 RUTRUT Price:Price: $589.77$589.77 --20.8920.89Options Price IV Delta Trade

FEB(15)

660 Puts $70.20 -99.6 +2

650 Puts $60.20 -98.8 +1630 Puts $41.10 -93.3 +1

. . - . ‐

610 Puts $24.20 22.9% -76.6 ‐2

590 Puts $12.20 25.2% -48.0 ‐2

-. . .570 Puts $5.70 28.3% -23.1 +1

560 Puts $2.65 31.9% -10.3 +1


Delta 103.7Gam ma -3.9

Theta 54.2


Vega -97.9








Point #4Point #4 -- Stay with SAME vehicle, SAMEStay with SAME vehicle, SAME

strate , SAME methodolo !!strate , SAME methodolo !! Switch vehicles monthly? NO

How are craftsmen or experts developed?

Can you follow a plan and stay disciplined?


##



Point #5 Do you really , really love thisPoint #5 Do you really , really love this

stuff? PASSIONstuff? PASSION First 1-1 1/2 years you might imitate The Three

Stooges more than a trader!


L t T d d J i O C it !L t T d d J i O C it !



Learn to Trade and Join Our Community!Learn to Trade and Join Our Community!

Trading takes a long t ime to learn.Trading takes a long t ime to learn.Our mentoring program has lifetimeaccess so you never stop learning.

The fastest way to learn a new skil l is with an experienced mentor.The fastest way to learn a new skil l is with an experienced mentor.It’s no different with learning to trade options. Our Mentors are all

.

Trading can be lonely!Trading can be lonely!

Our special community of over 750 active option traders helpseach other daily in our forums and trading groups. It’s like havinga partner to go to the gym with. You’re more likely to be successfulif you surround yourself with others doing the same activity.

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Sheridan Top 5 Mistakes When Creating Monthly Income Feb10