most Traders have very poor results when trying to predict Market direction to many it feels like the market is secretly against you because it seems to do the exact opposite of what you think will happen look we've all felt this way at times but trading directionally is only one way to play the game another way and perhaps a better way for some is to be a non-directional Trader and deploy the power of certain option strategies to make money whether the market goes up or down in this video our head of options trading will teach you one of these powerful strategies I'm Mike Bella Fury and we're one of the top proprietary trading firms located in New York City and proud to have developed numerous seven and even eight figure per year Traders we hope you agree this is the top YouTube channel to help you grow your trading account [Music] foreign [Music] ER I'm the head Trader of SMB capitals options trading desk here in Manhattan and earlier this week I flew to Las Vegas to speak at the money Show in Las Vegas I presented a speech called the secret to high probability options trading and uh for those of you who aren't able to make it to the money show I thought it'd be interesting if we were to share with you that talk because the attendees thought it was uh pretty valuable so let's get into it all right so let's talk about what we're going to be going over today and in this Workshop that we're going to be conducting you're going to discover the reason why you don't have to risk your own Capital to trade for a living most people believe they've got to use simply their account and their savings to trade but there's there's another way we're going to share that with you we're going to be talking about why most professional options Traders trade broad-based index options not stock options there's a lot of important reasons we're going to be going over that we're going to be talking about why it actually makes more sense to sell options than to buy them we're going to next discuss how to set up trades with an 85 percent chance of winning statistically most importantly we're going to be going over why you never have to pick Market direction to execute high probability trades with a really high win rate so that's we're going to be going over today and and let's let's dig into it so first of all I'd like to share with you who SMB capital is we're not just another trading education Guru SMB capital is a proprietary trading firm and we're located in Manhattan and we're one of the best known and most respected professional trading firms in the world here's a sense of what our headquarters look like and you can even hear the ambulances in the background here in Manhattan uh where we're shooting this video today SMB capital is home to 65 plus pro Traders um and so education is not really our main business our main business is producing hundreds of million dollars of trading profits in-house we have truly Elite seven and eight figure traders who trade for SMB Capital uh who trained here and are now extremely successful and trading therefore is our lifeblood this is mainly what we do the partners of our firm have appeared on CNBC CNN Money BBC Bloomberg Etc uh and Wall Street Warriors we are well known throughout the financial world so what's the good news and the good news is that you don't always have to Simply trade your own Capital to succeed as a Trader proprietary trading firms do not require you to put up any Capital to trade for them instead the prop firm puts up 100 of the capital and the firm takes 100 of the risk professional prop firms then shares with you a generous percentage of the profits you make each month but we do not ask you to take part in any losses but for the privilege of you trading our Capital obviously you've got to be a qualified Trader you've got to be profitable you've got to be consistent and most importantly you have to be disciplined and careful I'm Seth freudberg I'm the head options Trader here I first learned to trade options after 20 years as the CEO of a Property and Casualty Insurance Company the Traders on our desk are not just kids right you think of most Traders as young people but in fact many of the Traders on our desk traditionally have been uh obviously young people in their 20s and 30s but plenty of people in their 40s their 50s even their 60s they're from all over the world and they can trade remotely or in our offices here in Manhattan we have plenty of Traders all over the United States in Europe and Asia even Australia all right so I promise to talk a little bit about index options and why professional traders who are options income Traders tend to trade index options versus individual Equity options so let's talk about that that most people know what Equity options are for example if you buy an equity call option then you're entitled to buy 100 shares of the stock to which that call is derived at any time between the time you buy that option and the time it expires at What's called the strike price of the option we'll give you some examples here in a minute an equity put option on the other hand confers the right of the buyer of the put option to take shares he's he owns and sell them 100 shares in particular at the strike price of that put option index options on the other hand settle in cash why you can't own an index you can't own 100 shares of an index because an index is a measurement of a basket of stocks but index options therefore do not pay off in shares do not provide a a right to buy or sell shares but rather index options provide you the opportunity to receive cash in your account and therefore index options are cash settled and you'll see examples of this in a moment an index call option pays you exactly one hundred dollars for every point above the strike price of that option on expiration date an index put option pays out 100 for every point below that strike price what most people may not be aware of is that you can buy options but you can also sell them your broker will allow you to do either so when you buy an index option you pay cash for it and you are called long that option but when you sell an index option you receive cash you're short that option so if you're long and index call option you want the market to go up if you're short in index call option you want the market to go down if you're long and index put option you want the market to go down and if you're short in index put option you actually want the market to go up so your broker is going to allow you to buy or sell them and whether you've bought or sold them dictates what you want to happen in the market and when you buy an index option you pay 100 times its quoted price so for example if you buy this 4130 strike price call that you can see on the illustration here the price the quoted price is 68. 45 will you pay 100 times that so you pay six thousand eight hundred forty five dollars same concept with the put if you buy the put the 4130 put you see that the price is 57. 95 well you multiply that by 100 and what actually comes out of your account is five thousand seven hundred ninety five dollars all right so that's buying an option let's now look at how options are settled for example let's say you own the four thousand strike price call all right you bought that and the index in question just whatever index it may be closed at 4032.
well the way you're going to calculate how much that call option is worth is you take the closing price 40 32 you subtract from it four thousand that brings you 32 you multiply that by 100 and that gets you to thirty two hundred dollars uh the 4075 strike price call however expires worthless and the one who sold that call to You Pockets the premium he wins that transaction and the reason is because the 4075 call was well above where the index closed on expiration day and so owning that call brought you in nothing and you had a value of zero on your hands at the end all right same thing with the final value of the puts take the same index it closes at 40 32 on expiration day the 4075 strike price put pays out the strike price minus the closing price of the stock because remember these only have value when the market closes below their strike price that gives you 43. you multiply that by 100 and the option is worth four thousand three hundred dollars on expiration day but the 4 000 strike price put that one expires worthless why because the market did not close below four thousand and therefore again in this example the put seller wins because he didn't have to pay out anything from the put contract that he sold instead he just gets to keep the cash that you paid him when you bought that from him so that is how index options are valued so now we need to focus on options premiums and break-evens you see every option has a premium that's built into it to compensate the seller of the option for the risk of that option seller is taking so if an index is trading at 1200 for example and let's say that the 30 day at the money call might be trading for twenty five dollars which you'd pay twenty five hundred dollars for as we just told you so for the buyer of that call to make money the index has to get up to 12. 25 for the buyer to break even on the call right you pay 25 for it it doesn't uh it won't pay off until the market goes above 1200 if it does it's got to get past 1200 by 25 in order for you to make any money at all because you spent 25 on that call now the seller of that option makes money at any price from 12.
25 or below right let's say the index closes at 12 24. all right well he the bot the seller was paid 25 for selling that option this the index closed at 12 24 so even though the the call option is worth twenty four hundred dollars the one who sold it only has to pay out that 2400 he gets to keep the 100 that he collected uh net of the 24 he paid out in other words he collected 2500 he has to pay out twenty four hundred so he makes a hundred dollars and that's why at any price below 12. 25 the option seller would make money in this case so the call buyer doesn't have to just be right that the Market's going to go up if you don't think the Market's going to go up don't buy a call option if you do think it's going to go up you can be right but you've got to be right enough to cover the premium that you paid in order to make any money on the trade so you can be right about the Market's Direction and still lose money buying an option being long on an option you have a hurdle to overcome which is the premium you initially paid for it in this case was 25.
so you're you're right the market went from 1200 to 1224 and your thanks for being right is you still lose money the call seller of course who wants the index to go down because he doesn't want to have to pay out anything on his obligation he can make money even if the market goes up a little bit so now you're the call seller the market goes up it gets to 12 15 and stops you make the entire premium you just get the pocket that premium if you think about it the true Edge in options trading is in selling options not buying them think about it there's only five possible incomes for each index option trade right the index rallies a lot the index rallies a little the index doesn't move at all the index goes down a little bit or the index goes down a lot I think we can all agree there's the only five possible outcomes of an index options trade once you've entered into it so for example if you buy an at the money call option you actually lose in four out of the K five cases why do I say that well if you buy an at the money call option with a strike price of 1900 for an index trading you know at 1900 and you pay forty dollars for that which means you're you're gonna actually have a cash outflow of four thousand then if the index goes down a lot you're obviously going to lose because the call is only going to respond at all if the market gets if the the index gets up above 1900 okay uh the second case the index goes down a little again you're going to lose right it has no value unless it gets above 1900. suppose the index doesn't move at all it just stays at 1900. you're going to lose suppose the index goes up to 39.
99 remember you paid 40 for it so if the index goes up 39. 99 to 1939. 99 you still lose you lose a dollar but you still lose right so you were right and you lost only if the index rallies more than forty dollars which is the cost of the call in that one case you win but what if you are the seller of that same call I want you to think about the situation you have if the index goes down a lot you win right it it will be below 1900 it has no value on expiration day the index goes down a little bit you win for the same reason the index doesn't move at all you win the index goes up as much as 39.
99 you win the only if the index rallies more than forty dollars the cost of the call only in that one case do you lose so you can see your chances of winning by selling an option are always going to be better than buying it because in four out of the five scenarios you're going to win all of options income trading is based on this wonderful Edge when you sell an option you get paid for entering into a trade where four out of the five scenarios you will win so the strategy that we're about to teach you is based on this one basic fact most options contracts Aspire worthless and the seller of the option Pockets 100 of the premium you paid him the purpose of this Workshop is to teach you how to be an options premium seller the smart place to be in options trading so let's take a look at a great example of this kind of trade a good way to summarize the trade we're about to teach you is how to win over a huge range of prices whether the market goes up down or nowhere this is a chart of the SPX index on December 15 2022 and many of you may not have realized this because you may not look at things the way options Traders do but the market the SPX index the S P 500 Index actually channeled in a fairly uh definable range in the last eight months of 2022. you see that range that we're showing you there it channeled between 35 and 4300 over the eight month period from May through to mid-December and so let's say that you decided you wanted to put on a trade which gave you a very wide rate wide range of price outcomes over which you would make uh very decent money so let's say that you as a Trader initiate an 850 point wide iron Condor options trade and we'll get into later why I'm saying that's an 850 point wide iron Condor trade uh basically what we're doing is we're bracketing the market around its eight month lows and highs and we're doing so by going forward about 60 days to the February 17th options chain which expires in 64 days so how we'd construct this trade is we would sell 10 index option calls on the S P 500 Index the SPX index up at 43. 50 and at the same time we'd sell 10 puts at the thirty five hundred dollar price so basically we've racketed that range that the market was trading in over the last eight months 3500 was support and 4300 was uh resistance and so at the same exact time for protection and to be careful we're buying 10 calls 25 points higher than the 4350s we sold those are at 43.
75 and we also bought 10 calls 24 5 Points lower at 34. 75 so we actually execute these all at once this is called an iron Condor your broker if you have any of the major Brokers will have an options platform that will have it on its menu of options choices option strategy choices uh one of those menu items will be an iron Condor and you simply populate it with the strike prices and the lot sizes that you're interested in trading let's take a look at the cash flow of what we just did it's very important to understand the cash flow so when we sold those 4350 calls we received the price of 15. 20 for those but remember you have to multiply that by a hundred and we sold 10 of them so that produces fifteen thousand two hundred dollars in positive cash flow into our account when we sold the puts we also had a positive cash flow event this time we received 23.
24 we multiply that by a hundred and we sold 10 of them so we multiply that by 10 and we get in for that part twenty three thousand two hundred dollars in cash right into our account now we're going to spend some of that now we're going to spend a lot of it because we're going to be careful Traders and we're going to get some protection so up at 43. 75 we're going to buy those 10 calls as we talked about twelve dollars and seventy cents is the price we've got to pay for those again you multiply it by 100 and again by 10 because we have 10 lots that is a cost to us of twelve thousand seven so that's coming out of that cash that we received by selling the calls and the puts initially and then at the same time we're also buying the protection on the puts buying those 34. 75 puts and those fetch the price of 29 20 20.
95 and so that cost us twenty thousand nine hundred fifty dollars so when you net it all down there's a positive cash flow of four thousand seven hundred fifty dollars coming from entering into this iron Condor and your broker will require you to have twenty thousand two hundred fifty dollars in your account to do this trade so just to recap through selling and buying a combination of options you've got positive cash flow in the amount of four thousand seven hundred fifty dollars you will see the cash in your account go up by four thousand seven fifty but then your broker is going to require you to have twenty thousand two hundred fifty dollars in your account in order to do this trade which is also the worst case scenario of the trade by the way let's move to February 7 2023 and you can see that the index has closed at 40. 79 on the day that the options expire so all of the options expired with zero value that's right every option that we entered into had zero value at the end of the day why remember calls only have value if the market closes above their strike prices puts only have value if the market closes below their strike prices well the SPX index closed at 40. 79 between the calls and the puts let's break this down so you really understand what I'm talking about here how are we going to Value each of these options at expiration when the SPX index closed at 40.
79 well let's look at the calls first remember we were short the 43 50 calls and we were long the 43. 75 calls well the market closed at 40. 77 does a call have any value if the market closes on the day it expires below the strike price of that call and the answer is no it has no value so the ones we were short and the ones we were long both expired with no value and the same thing happened on the put side with SPX closing at 40.
79 both the 3 500 puts which are way below 4077 and of course the 35 3475 puts which are below that both of them expired worthless because they only have value if the market expires below their strike prices well the market expired way above their strike prices at 40. 79 and therefore none of them expired with any value at all every option that was part of that iron condor expired with zero value what's the profit on the trade well SPX closed at 40. 79 so we just showed you the calls the long calls at 43.
75 the short calls at 43. 50 the short puts at 3 400 and the long puts it 34. 75 all of them for different reasons expired absolutely worthless meaning that that 4 750 dollars that we received at the beginning of the trade we just pocket that okay and that provides you with a profit in this example of over 23 percent on the capital that was required on the trade that twenty thousand two fifty we talked about uh a little bit earlier all right so simply because all the options that we entered into in this iron Condor expired worthless the only thing left is for us to pocket that 4750 which means the guy who bought the iron Condor from us he lost that four thousand seven hundred fifty dollars just as we described with outright just buying and selling calls shouldn't really be that surprising that an iron Condor where at any price within an 850 Point range we win right because as long as the market was anywhere between the short put at 3500 and the short call at 43.
50 anywhere between those two prices which is 850 points we were going to win on that trade and it was no accident that we set it up so that the short put was at uh support and the short call was near resistance why because the market had shown a willingness to channel in between those two points during the previous eight months so we were betting that the market was going to stay somewhere within those 850 points over the next 60 days and statisticians would tell us that that the chances of it doing that are just staying inside that range are about 85 percent and so with those kinds of odds most serious professional options income Traders trade broad-based index options uh strategies and they use for example the S P 500 Index called the SBX the NASDAQ 100 called the ndx or the rut which is stands for the Russell 2000 Index and the reason is pretty simple options income trading is the only Styles trading where you want the market not to move and so index options are the ultimate in diversification right why are they the ultimate diversification well no single industry can cause the price of the whole index to go wacko right no single industry can do that because there are so many industry Industries represented those single companies fortunes can go Wacko and destroyed a trade stability no single companies event such as an earnings report a sales report Etc can destabilize the index's price and you have multiple expirations in a week for mace most major indices okay um it used to be in the old days that options only expired once a month so any strategy that you uh were to implement would only be able to be implemented 12 times a year you only get 12 12 bytes of the Apple in the old days these days uh there's an index the SPX index that has daily expiration meaning given that they're about 250 trading days in a year you get 250 bytes at the Apple also index options are very liquid and the fills are generally very easy and efficient another point I want to make which I can't make to you in a direct way because I'm not a tax professional but I urge you to ask your tax accountant about the tax advantages of trading broad-based index options that I think you're going to be pleasantly surprised by that as well so options Traders what do they do what do options income Traders do what they do is they figure out high probability trading strategies such as the iron Condor they back test them and then trade them with live Capital every month every week and in some cases every day in other words they take high probability trades and they keep trading them over and over and over and over again because the probabilities of winning them are so high additionally they're going to be cases where the market does something unexpected it's within those 15 percent of the chances if you if you have a high probability iron Condor that you have an 85 chance of winning well there's a 50 chance you lose it and of course sometimes the market goes outside of uh the ranges of for example an iron Condor right well they they don't just sit there like sitting ducks professional options income Traders have techniques for extending the size of the range so that uh hopefully the market will fall inside the extended range even if it did not stay within the original intended range and that's why we hire professional income Traders for our desk and provide them with capital because we know that this trading style works if you want to learn more about options income strategies we actually have a free two-hour Workshop that we would like to invite you to you can register for that workshop at optionsclass. com in that Workshop we're going to be teaching you two more option strategies including a cool trick for getting paid while you wait to buy a stock at the price that you dictate and we also teach you a second strategy where you can set a direction for a stock put on an options trade on that stock and even if you're out right wrong on Direction you still have a wonderful opportunity to make money on that strategy so we're going to be teaching you both of those strategies in the optionsclass.
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