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Elective 1: Adjusting Vertical Spreads

Most people are aware of the standard exit techniques used for vertical spreads. However, sometimes the situation calls for a more sophisticated exit or adjustment. This lesson walks you through a stock example where we implement various techniques to adjust and exit a vertical spread position in a way that maximizes opportunities.

Elective 2: Portfolio Margins

Portfolio Margining was originally referred to as the “new” margin rules. It’s been years since they came out, but very few retail traders know about them, and even fewer of them have ever incorporated them into their trading. This lesson introduces Portfolio Margining, covers some of the limitations, and looks for solutions to those limitations.

Elective 3: VIX Options

Ever since the VIX became a popular tool for measuring market volatility, people have sought a way to trade it. The answer came by way of the VIX Options. However, these options behave VERY differently from just about any other option set you may have traded. In this lesson we discuss those differences and nuances, while offering some safe, introductory approaches to confronting VIX options.

Elective 4: Parity

This lesson serves as an introduction, and hence, as a prerequisite to the Put-Call-Parity lesson. It defines the term “parity” and even covers some basic examples showing how calls, puts, and stock are inter-related. In essence, this lesson serves as an introduction to what is often referred to as the “options puzzle”.

Elective 5: ATM Verticals

This lesson takes the ATM Vertical as a proposed approach to earnings plays. While most earnings plays center on volatility strategies like straddles and strangles, those strategies may be subject to volatility crushes. The ATM Vertical approach attempts to trade in all of that volatility and time decay risk in exchange for controllable directional risk. Take a look!

Elective 6: Delta Hedging

This lesson focuses on static delta hedging and serves as a precursor to dynamic hedging techniques such as gamma scalping and reverse gamma scalping. For those of you looking to understand the hedging process and the reasons for hedging, you’ll want to review this lesson

Elective 7: Broken-Wing Butterflies

The much anticipated introduction to Broken-Wing Butterflies is here! This lesson covers the fundamentals of the BWB, including understanding how to select strikes and who the position behaves as the underlying security moves and as time goes by. We expect this lesson to become a fan favorite in a short period of time!

Elective 8: 1-3-2 Trade

This lesson may be seen as the follow-up to the Broken-Wing Butterfly (BWB) lesson. We discuss the Unbalanced Butterfly, or as it is sometimes called, the 1-3-2 Trade. This includes understanding the basic construction, reward-to-risk ratios, and the behavior of the option greeks in the trade. This is an AGGRESSIVE strategy, and hence you must respect the risk of this trade.

Elective 9: How To Pick A Stock

While there are no great secrets to stock picking, there is a certain methodology involved. This lesson covers a few rules that all traders should follow. Warning: It is not a lesson on chart set ups. Rather, it’s a checklist to help you make better choices and to take more calculated shots in the marketplace.

Elective 10: The Roll

You can think of the Roll as the “cousin” of the Box. While the Box looks at synthetic stock across different strikes, the Roll looks at synthetic stock across different expirations. This is one of the more involved lessons in the Electives, but to be merciful, I made it relatively short. Enjoy!

Electives Part 2 Series

Introduction to Futures Contracts:  Elective 2-1

What are Futures contracts? How and why do people make use of them? This lesson serves as a primer for all investors seeking to gain a better understanding of one of the oldest risk management instruments available.

Gamma Scalping Supplemental: Elective 2-2

While there already exists a lesson on Gamma Scalping, this lesson adds new techniques, such as using options rather than stock in order to reduce the deltas. We also introduce the concept of “Paying for the Day”.

Covered Calls: Elective 2-3

This lesson focuses on the construction of covered call positions and explains why so many traders and money managers gravitate to the strategy. We cover what happens to a covered call position as the stock moves one way or another. Finally, we explore some possible ways to limit the downside exposure inherent in the strategy.

Earnings Plays: Elective 2-4

Ah, Earnings! Those pesky, quarterly events that drive traders nuts with anticipation, uncertainty, and well, opportunity. This lesson covers some of the more common symptoms of earnings season and then explores some popular short-term strategies that may be implemented in preparation for the actual earnings release.

Credit Spreads Revisited: Elective 2-5

In this look at Credit Spreads, we review the basic construction and exits. We then delve into using option deltas and spread prices as proxies for the inherent probabilities that a stock will pass a given threshold.

Mini Options: Elective 2-6
Standard options with a multiplier of 100 may represent too much money for the smaller investor. Mini Options have a multiplier of 10. This helps the little guy trade options on the big stocks just like everyone else!

ETF’s: Elective 2-7
What exactly are ETFs? They seem to blend the best (and sometimes the worst) of stocks, mutual funds, and indexes. This lesson compares and contrasts Exchange Traded Funds and ends with a detailed explanation of the perils of leveraged ETFs!

Beta Weighting: Elective 2-8
Nope, it’s not an option greek. Beta is actually better known in conjunction with the Capital Asset Pricing Model (CAPM), but it is an important concept for anyone interested in hedging a portfolio of stocks!

Skew: Elective 2-9
This lesson is specifically dedicated to vertical skew, that is, the implied volatility skew that you see between strikes of the same expiration. We discuss why it is important, how you measure it, and what it means for your trading.

Electives Part 3 Series

Calendars Part One: Elective 3-1

Also known as “time spreads”.  Using the same strikes, but now spreading across different expirations.  We’ll sell the option with the shorter time until expiration since it decays at a faster rate.  But we’ll also buy a longer term option to keep the risk in check.

Calendars Part Two: Elective 3-2

If you’re going to sell an option, makes sure it’s really expensive, right? Not necessarily. Especially when looking at calendars. This class will take a look at the skew between the two options traded in the calendar.

Calendars Part Three: Elective 3-3

Diagonal trades combine the theta profile of a calendar, with the directional nature of a vertical spread. These really are verticals, but spread out over time. Use them to get a bigger time decay boost for your directional plays. Or give your non-directional calendar a little more breathing room if the stock moves.

Verticals Part One: Elective 3-4

You don’t buy spreads just because they’re “cheaper”. In this first of four vertical spreads we look at the basics of spreading options, and more importantly WHY you need to understand this concept.

Verticals Part Two: Elective 3-5

There are only two types of vertical spreads: calls and puts. But we can buy or sell either one. Here we’re going to continue to buy and sell calls in the same month, but by switching the strikes we end up with a bearish trade.

Verticals Part Three: Elective 3-6

Continuing with the third of the four vertical trades we move to puts.  And just like with the calls, the strikes that are bought and sold in the spread determine whether you’re buying or selling the spread.

Verticals Part Four: Elective 3-7

Bullish trades for traders that like “credits”.  Of course it’s not really a credit, but by selling higher strike puts and buying lower strike puts, we end up with high probability trades for times when you think a stock isn’t really going to tank.

Butterflies Part One: Elective 3-8

Building on the idea of selling an option to offset a long option in vertical spreads, we’re now going to look at selling an entire vertical spread to offset a long vertical.  If the stock moves toward the right price, then both verticals can profit.  This can act kind of like a calendar, but it’s used in different situations.

Butterflies Part Two: Elective 3-9

What’s the most common butterfly?  The kind made out of iron, that is…iron butterflies.  If you’re going to sell one vertical, why not sell two and double up on the credit.  But we’re also going to look at using the idea of a butterfly as an adjustment to a trade.

Straddles and Strangles Part One: Elective 3-10

These strategies are both very similar.  You buy a call, and you buy a put, and you hope the stock makes a big move one way or the other.  In this first of four lessons we’ll begin to look at this type of “non-directional” trading.

Straddles and Strangles Part Two: Elective 3-11

After a short review, we’ll look at when and when NOT to trade these strategies.  We’ll also look at volatility more in-depth, which really can be the most important thing to understand.

Straddles and Strangles Part Three: Elective 3-12

Now that you understand the strategy, it’s time to look at what to do when the stock moves just as you thought.  It’s called “rolling”, which is just a way to adjust straddles or strangles when they are no longer “non-directional”.

Straddles and Strangles Part Four: Elective 3-13

Wrapping up this four-part series we’ll look at “gamma scalping”.  All of that theta is getting you something, and it’s called gamma.  You can make use of the gamma, though, to offset your theta.  This will start to get a little advanced, but it’s well worth knowing.  And this is certainly a “must have” tool for professional traders.

Collars Part One: Elective 3-14

If you’re going to own a stock, then you can “insure” its value…kind of like property insurance.  When this strategy is properly entered into and managed, movement in your stock can become a very good thing. But which strike and expiration?  We’ll show you how to get started in this class.

Collars Part Two: Elective 3-15

Adjusting the put higher or lower needs to happen if your stock is moving.  As long as it’s not going to zero,  you should be able to lock in some profits on the way up.  There’s a methodology for doing that.  Here it is.

Collars Part Three: Elective 3-16

It’s not really a collar until the call gets sold.  Similar to a covered call strategy, this final part of the collar is used to pay for the insurance – not necessarily for income.  But which call to sell?  And how to adjust it?  We look at those questions in this session.

Collars Part Four: Elective 3-17

Adjusting the put higher or lower needs to happen if your stock is moving.  As long as it’s not going to zero,  you should be able to lock in some profits on the way up.  There’s a methodology for doing that.  Here it is.

Adjustments Part One: Elective 3-18

Don’t be happy just making money on your winning trades.  Learn to make adjustments to remove risk, lock in profit, and give yourself the comfort to ride that big trend without getting out too early.  Something most retail traders can’t avoid doing.

Adjustments Part Two: Elective 3-19

Just because your trade loses, it doesn’t mean it’s the end of the world. Besides simply closing the trade, you might consider other ideas to cut risk or give yourself time to “ride out the storm”.  But there are things you should NOT do, and that’s really the most important point here.

Adjustments Part Three: Elective 3-20

Now that you’ve made your adjustment, for good or for bad, you might in some cases decide to “undo” your adjustment.  This is a little more complicated, but can be a great trade in the right situations.