Presents Mastering the Markets Your Path to Financial Freedom

Transcription

1 Presents Mastering the Markets Your Path to Financial Freedom 1

2 DISCLAIMER Neither MasterMind Traders or any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any particular individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also MasterMind Traders personnel are not subject to trading restrictions. I and others at MasterMind Traders could have a position in a security or initiate a position in a security at any time. MasterMind Traders 2

3 BASIC PUT BUTTERFLY R XYZ at 1000 Net Debit $3.00 Max Risk $3.00 Max Profit $27.00 BTO 970 Put x1 Debit Spread (Income side) STO 940 Put x2 Credit Spread (To pay for Income side) BTO 910 Put x1 Longs are equal distance from shorts 1 : 2 Ratio

4 Price rises XYZ at BTO 970 Put x1 Lose $3.00 R Can sell Debit Spread and hold Credit Spread to minimize loss. STO 940 Put x2 Net Debit $3.00 Max Risk $3.00 Max Profit $27.00 BTO 910 Put x1

5 Price drops too far XYZ at 1000 BTO 970 Put x1 STO 940 Put x2 Lose $3.00 Could buy back 940 x1 and hold debit Spread to minimize loss. R Net Debit $3.00 Max Risk $3.00 Max Profit $27.00 BTO 910 Put x1 900

6 BASIC PUT BUTTERFLY XYZ at 1000 R BE $967 Net Debit $3.00 BE $913 BTO 970 Put x1 Profit Zone MAX PROFIT Profit Zone BTO 910 Put x1 At the Short Leg (940) Max Risk $3.00 Max Profit $27.00

7 BASIC CALL BUTTERFLY BTO 1060 Call x1 Credit Spread (To pay for Income side) Net Debit $3.00 STO 1040 Call x2 Debit Spread (Income side) XYZ at 1000 BTO 1020 Call x1 Max Risk $3.00 Max Profit $17.00 S

8 BASIC CALL BUTTERFLY BE $1057 Net Debit $3.00 BE $1057 XYZ at 1000 BTO 1060 Call x1 Profit Zone MAX PROFIT At the Short Leg (1040) Profit Zone BTO 1020 Call x1 Max Risk $3.00 Max Profit $17.00 S

9 STRUCTURE Place Shorts where you don t think the security will break through. Call Butterfly: Shorts above resistance or most recent highs and place Longs around that. Put Butterfly: Shorts below support or most recent lows and place Longs around that.

10 BUTTERFLY MATH! This CAN BE a directional debit strategy. The breakeven points occur between the Long Strikes (The debit plus the lower Long Strike, and the debit subtracted from the upper Long Strike). The breakeven points between the Long Strikes offers a potentially high probability trade. Max Risk is the debit. Max Profit is the difference between the Long Strikes minus the debit. It occurs at increasing and decreasing levels between breakeven points with maximum profit realized at the Short Strikes at or near expiry.

11 PUT BROKEN WING W/20 Pt. RISK XYZ at 1000 BE 970 Net Credit $.20 Might be a small Debit BE BTO 970 Put x1 STO 940 Put x2 30 pts 50 pts R Margin Requirement 20 pts BTO 890 Put x1 Unbalanced Butterfly

12 CALL BROKEN WING W/20 Pt. RISK BTO 1080 Call x1 BE Net Credit $.15 BE 1020 STO 1040 Call x2 BTO 1020 Call x1 40 pts 20 pts XYZ at 1000 S

13 BE $.15 Net Credit BTO 1080 Call x1 STO 1040 Call x2 BTO 1020 Call x1 XYZ 1000 Profit Margin Profit Gross Credit $.20 Net Credit BE BTO 970 Put STO 940 Put x1 x2 Profit Margin $.35 Gross Credit BTO 890 Put x1

14 Both Call and Put Butterflies are Theta positive. This means we re getting paid to be in the trade because Credit portion of trades, the outer wings, will get crushed because they re further OTM. The Income side will hold value because they re closer to the money. Therefore, they can be sold back for additional profit. BTO 1080 Call x1 STO 1040 Call x2 $1.50 BTO 1020 Call x1 XYZ 1000 BTO 970 Put $2.50 STO 940 Put BTO 890 Put x1 x2 x1 OTM Closer to the Money Closer to the Money OTM

15 Theta Positive Trade BTO 1080 Call x1 STO 1040 Call x2 BTO 1020 Call x Theta XYZ 1000 On 10 Cts, that s $80 per day to start the trade off and that s just on the Put side even if the Underlying falls asleep and goes nowhere. BTO 970 Put STO 940 Put BTO 890 Put x1 x2 x (+.34)

16 OBJECTION To be in a Positive Theta position so as if the Underlying does nothing, we re still in a favorable position. If the Underlying starts moving in one direction or the other we can protect ourselves and have the odds in our favor.

17 GUIDELINES First, determine best area to place shorts. Work first Long option and tail option around Shorts. Play with Strikes to get a Credit if possible (not absolutely necessary). If more risk is perceived on one side, create larger Debit side and put trade on for a Debit.

18 Major concern is that the market breaks too far up or down. BTO 1080 Call x1 STO 1040 Call x2 BTO 1020 Call x1 XYZ 1000 BTO 970 Put x1 The underlying must go through the Income side first before it can threaten the trade. Beyond the Shorts is the risk. The Shorts must be protected. STO 940 Put BTO 890 Put x2 x1

19 ROLLING SHORTS TO PROTECT (MARKET FALLS TOO FAR) BTO 970 Put x1 STO 940 Put x2 Underlying breaks Support and the Shorts (940) appear threatened. The Shorts must be protected to reduce risk. S BTO 890 Put x1

20 ROLLING SHORTS TO PROTECT (MARKET FALLS TOO FAR) BTO 970 Put x1 STO 940 Put x2 Rolling down not to replace original Butterfly but to overlap it. BTC 940 Put x1 STO 910 Put x2 Maintain same 30 pt. difference in Strikes. BTO 890 Put x1 New Long 940 will be in same position as original Short (940). BTO 860 Put x1

21 POSITION ROLL DOWN Long 970 Put x1 Short 940 Put x1 Short 910 Put x2 Original BTO 970 Put x1 STO 940 Put x2 Overlap BTC 940 Put x1 STO 910 Put x2 Long 890 Put x1 BTO 890 Put x1 Long 860 Put x1 BTO 860 Put x1

22 POSITION AFTER ROLL DOWN Risk rolled down from 940 to 910. Long 970 Put x1 Short 940 Put x1 Short 910 Put x2 Long 890 Put x1 Long 860 Put x1 Debit Spread Credit Spread

23 POSITION AFTER ROLL DOWN 30 pts of income The 30 pts of income is maintained all the way down to 910. Long 970 Put x1 Short 940 Put x1 Short 910 Put x2 Long 890 Put x1 Long 860 Put x1 60 pt trading range 895 Breakeven Adds another 15 pts to trading range (total of 75 pts of trading range.

24 What happens to Call side with fall of market? The Call side lost Theta value. We should increase Theta by bringing the Call Butterfly closer to the money after or before we roll down the Puts. Because this brings the Long Call closer to money, it further protects us if the Underlying were to reverse to the upside. So, let s increase Call Theta.

25 ROLL DOWN TO INCREASE THETA (MARKET WENT DOWN) If Underlying decreases in value, the Call Theta is dying off so we roll down to increase Theta. BTO 1080 Call x1 STO 1040 Call x2 BTO 1020 Call x1 XYZ at 1000 XYZ at 990 Rolling down not to replace original Butterfly but to overlap it. BTO 1060 Call x1 When rolling down, the new Shorts will be at same Strike as original 1020 Long. Sell Call (1 STC / 1 STO) BTO 1000 Call x1

26 POSITION AFTER ROLL DOWN Long 1080 Call x1 Long 1060 Call x1 Short 1040 Call x2 Short 1020 Call x1 Long 1000 Call x1

27 POSITION ROLL DOWN Long 1080 Call x1 Long 1060 Call x1 Short 1040 Call x2 Short 1020 Call x1 Long 1000 Call x1 Original BTO 1080 Call x1 STO 1040 Call x2 BTO 1020 Call x1 Overlap BTO 1060 Call x1 Sell Calls (1 STC / 1 STO) BTO 1000 Call x1

28 POSITION AFTER ROLL DOWN Long 1080 Call x1 Long 1060 Call x1 Credit Spread Risk remained at high point of Short 1040 Call x2 Short 1020 Call x1 Long 1000 Call x1 Debit Spread

29 BTO 1080 Call x1 STO 1040 Call x2 BTO 1020 Call x1 XYZ 1000 Long 1080 Call x1 Long 1060 Call x1 Short 1040 Call x2 Short 1020 Call x1 Long 1000 Call x1 First BTO 970 Put x1 Long 970 Put x1 STO 940 Put x2 Short 940 Put x1 BTO 890 Put x1 Short 910 Put x2 Second Long 890 Put x1 Long 860 Put x1

30 CALL BROKEN WING W/20 Pt. RISK BTO 1080 Call x1 STO 1040 Call x2 BTO 1020 Call x1 R BTO 1090 x1 STO 1060 x2 BTC 1040 x1 Maintain same 20 pt. difference in Strikes. XYZ at 1000 S

31 Long 1090 Call x1 BE 1070 Risk rolled up from 1040 to 1060 Long 1080 Call x1 Short 1060 Call x2 Short 1040 Call x1 Long 1020 Call x1 Credit Spread Debit Spread

32 POSITION ROLL UP Long 1090 Call x1 Overlap BTO 1090 Call x1 Long 1080 Call x1 Original BTO 1080 Call x1 Short 1060 Call x2 Short 1040 Call x1 Long 1020 Call x1 STO 1040 Call x2 BTO 1020 Call x1 STO 1060 Call x2 BTC 1040 Call x1

33 What happens to Put side with rise in market? The Put side lost Theta value. We should increase Theta by bringing the Put Butterfly closer to the money after or before we roll up the Calls. Because this brings the Long Put closer to money, it further protects us if the Underlying were to reverse to the downside. So, let s increase Put Theta.

34 ROLL UP TO INCREASE THETA (MARKET WENT UP) If Underlying increases in value, the Put Theta is dying off so we roll up to increase Theta. XYZ at 1000 BTO 970 Put x1 STO 940 Put x2 BTO 1000 Put x1 Sell Put (1 STC / 1 STO) When rolling up, the new Shorts will be at same Strike as original 970 Long. BTO 920 Put x1 BTO 890 Put x1

35 POSITION AFTER ROLL UP Long 1000 Put x1 Short 970 Put x1 Debit Spread Risk remains at low point of 940. Short 940 Put x2 Long 920 Put x1 Credit Spread Long 890 Put x1

36 POSITION ROLL UP Long 1000 Put x1 Short 970 Put x1 Short 940 Put x2 Long 920 Put x1 Long 890 Put x1 Original BTO 970 Put x1 STO 940 Put x2 BTO 890 Put x1 Overlap BTO 1000 Put x1 Sell Puts (1 STC / 1 STO) BTO 920 Put x1

37 BTO 1080 Call x1 STO 1040 Call x2 BTO 1020 Call x1 XYZ 1000 Long 1090 Call x1 Long 1080 Call x1 Short 1060 Call x2 Short 1040 Call x1 Long 1020 Call x1 Long 1000 Put x1 Second BTO 970 Put x1 Short 970 Put x1 STO 940 Put x2 Short 940 Put x2 Long 920 Put x1 First BTO 890 Put x1 Long 890 Put x1

38 TAKING OFF MARGIN RISK Take advantage of market run up to roll up furthest OTM Put tails. Roll down furthest OTM Call tails when market runs down. Roll if you can do it for a $.10 - $.15 cost for each 10 point move, preferably $.10.

39 3-17 th 1890/1910/1950 Call Debit 3-24 th 1870/1890/1930 Overlap Debit CALLS 3-17 th 1820/1790/1735 Put Debit 3-21 st 1850/1820/1770 Overlap Debit PUTS

40 RULES ON EXPIRATION DAY Exit all Short options. Exit all ITM options.

41 Presents Mastering the Markets Your Path to Financial Freedom 41