Trading stocks, futures, and options involves

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

You’ve made a good decision. Options are a zero sum game. Out smarting other traders is how you gain an edge in the market. The purpose of this ebook is to help you understand how options work so you can start constructing trades that can immediately put the odds in your favor.

But… let’s not ignore the elephant in the room. Trading is a contact sport. It involves risk of loss and is certainly not suitable for everyone. No matter how much you “know” or don’t know, the markets can serve you a big pile of losses out of nowhere. So be smart and don’t trade with money you can’t afford to lose. Do you know who practices this better than anyone…. Yup, the “Rich Options Jerk.” One of the biggest reasons why “rich” traders stay rich is that they can outlast smaller traders. Or, in other words, they can afford to be wrong more often, and for a longer period of time, than you. Let’s see if we can’t level the field a little bit and share with you what these traders know that make them “Rich Jerks.”

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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Truth # 1

Options were designed to expire worthless!

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

80% According to the CME Group (one of the largest options exchanges in world), nearly 80% of options expire worthless. Yes, nearly 80%… If this comes as a surprise to you, then you’re reading the right book. The reason why so many options expire worthless is as simple as it gets. They were designed to do so.

Options were created to be an insurance product for stock and commodity investors. Therefore, just like all insurance products, option contracts have an expiration date. If options are like insurance contracts, would you rather be the person buying the contract or selling the contract? Hint: Insurance companies have mushroomed to multi-trillion dollar businesses. “Rich Options Jerks” have known this since the 80’s and have been positioning themselves to take advantage of this little known fact ever since. This information is the foundation of the “Rich Jerks” options trading technique. Let’s take this concept a step further.

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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Truth # 2

Options decay the fastest in the last 30 days of the contract.

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

During the life of an options contract, a lot can happen. The price or value of the options can fluctuate wildly. If you were the buyer of the contract, you could make big money one minute or have a worthless option the next and vice-versa for option sellers.

The most crucial time for an option contract is the last 30 days. Why? It’s about odds. The way an option contract functions is that the underlying asset needs to be at a set price by a certain period of time or the option becomes worthless. So, think about it. If you own an option and in order for you to make a profit the stock or futures contract needs to move 30% in 4 days, what do you think your odds are? Probably not great. Now what do you think happens to your options contract? Yeah… it becomes worth a lot less when you try to sell it.

In a nutshell, the less time you have on your option the faster it starts to lose value. Have you ever had this happen to you? Don’t feel bad. Remember, options are a zero sum game. So if someone is losing money on these types of trades, there is another person profiting from them.

OK, now its time for you to start being the “Rich Jerk.”

30 DAYS

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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“Rich Jerks” Sell Options

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

You now know two major pieces of information: Nearly 80% of all out-of-the-money options expire worthless -&In the last 30 days of an option contract’s life, time decay speeds up

Let’s apply them to some real options strategies.

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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“It’s better to have one bird in the hand, than two in the bush.”

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

The first thing we need to start doing is sell options instead of buying them - collect money instead of parting with it. By doing this, we immediately become the house. We have the odds in our favor. However, we are giving some things up.

There is no such thing as a “free lunch” when it comes to trading options. We are always swapping one thing for another. So in this case, we are choosing to forego the unlimited upside potential when buying an option contact. Why? Because we would rather have the odds in our favor. As the old expression goes… “It’s better to have one bird in the hand, than two in the bush.” “Rich Jerks” not only believe this, but purposely avoid swinging for the fences. They try for singles and doubles. Buying options is like going for a home run at every bat. The odds of you striking out go up each time you approach the batters box. This is not the mindset of a “Rich Jerk.”

They are all about consistency.

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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Another thing to consider is the risk of loss. When we sell options “naked,” then we technically have unlimited risk.

Yes, unlimited risk. How is this possible? Again, this is simple. Remember that if you are the option seller, then you become the house. So if the other trader on the opposite side of your trade is right and the market moves in his or her favor, you need to pony up the funds to pay for the profits. So to trade like a “Rich Jerk” you need to play the long game, which is to keep selling out-of-the-money options and taking advantage of the fact that potentially the majority of them will work out in your favor.

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

Do I need to take unlimited risk?

NO - Not at all. In fact, there are some great tricks we will teach you that can help you limit your downside risk, while keeping the odds in your favor. We will get to this in a minute.

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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Truth # 3 Rich Jerk’s Don’t Pick Market Direction

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

Most traders think that they have to “know” where the market is going to make money trading. This is sort of a half-truth. “Rich Jerks” don’t always need to know where the market is going at all times. Instead, they just need to know where the market is most likely not going to go. Take for example your favorite commodity or stock. Knowing for sure where the price will be for that asset in a particular period of time is virtually impossible to forecast. Yet, that’s what every investor tries to do everyday. If I asked you where you thought the prices would probably NOT go in the same period of time, you might feel a lot more confident about that answer. This is what “Rich Jerk” options traders do. They look at their favorite asset and ask themselves what are the odds of this asset getting to this price or that price in the “x” amount of days. Next, they look at the prices for those options and determine if the price of that option is overvalued or undervalued. If it’s overvalued and the odds of the underlying asset reaching that price is low, they will consider selling that option.

This strategy is the opposite of the hope and pray technique used by most traders. The options seller is simply waiting for the market to do it’s thing and so long as the price doesn’t move too fast towards the options they sold, they are in good shape. All they have to do is just wait for the options to be worth less then what they sold it for. Pretty cool right?

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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Rich Jerks Become the Bank

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

Rich Jerk’s have also figured out a way to collect money every time they place a trade. Most options traders buy options and therefore have to debit their trading accounts every time they place a trade. They only get their money back when they sell their options for, hopefully, a profit.

The savvy options traders sell options so they can collect money. Again, think of the house in Vegas. Every time a sucker places a bet, the house gets the money first. Same goes for the options seller. This is a nice perk and a welcomed change for many investors. Here’s how it works: The options seller sells an option to a buyer. The buyer’s investment goes directly into the seller’s account. The option seller holds the money in their account until either a buyer exits the position, exercises the option, or the option expires worthless. The latter of the three options is what the options seller is hoping for. If the option expires worthless, then the option seller gets to keep all the money collected minus commissions and fees. However, even though the money goes into the seller’s account, it’s technically not the seller;s money until the trade is complete. One last perk for the options seller… they can buy the option back at any time. This is a huge plus!

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

5 Option Selling Strategies You Can Use Today There are five primary strategies we implement involving the writing (selling) of options.

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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1.

UNCOVERED WRITING

Uncovered, or naked writing, involves selling a call OR put without entering into an underlying futures contract. A naked call writer has a neutral to bearish view of a market, while a naked put writer has a neutral to bullish view on a market.

In most cases we recommend selling out-of-the-money options. This means selling a call with a strike price that is above the futures price or selling a put with a strike price below the futures price. In either case a dollar amount, or premium, is collected and credited to a client’s account. In the case of a short call this premium is retained if, by expiration, the futures has moved lower, stayed the same, or moved higher but not up to the strike price of the call. In the case of a short put the premium is retained if the futures has moved higher, stayed the same, or moved lower, but not down to the strike price of the put.

Learn how you can use this technique on your own trades today, call us directly at 800-972-3343.

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

SHORT STRANGLE

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A short strangle is a strategy in which a trader simultaneously sells both an out-of-the money put AND an out-of-the-money call in the same market for the same contract month.

This is the optimum strategy for trading sideways markets. All of the premium which was collected upon the initiation of a strangle will be kept if the underlying futures contract is between the strike prices on expiration.

Call us directly at 800-972-3343 and we’ll show you how this strategy can really work.

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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3.

RATIO WRITE

The ratio write is a strategy in which multiple out-of-the-money options are written and one closer-to-the-money option is purchased. This, in effect, creates simultaneous covered and uncovered option positions.

Ratio writing involves either selling two or more calls against a long option position or selling two or more puts against a short option position. Instead of buying an option the same can be done with a long or short futures position. This strategy takes advantage of the fact that option premiums generally do not move dollar-for-dollar with futures prices. In other words, the delta of each option is less than one. This strategy enables the investor to potentially profit in the futures contract, and at the same time retain the entire premium if the options expire worthless.

To learn more about how to use this specific trade strategy in your account, please give us a call directly at 800-972-3343.

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

COVERED WRITE

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This is a strategy which combines a futures position with a short option. A covered call write consists of a long futures and a short call; a covered put write consists of a short futures and a short put. Both strategies are used only when an investor expects little volatility in the futures price. Covered call writes are generally used when an investor thinks the futures will exhibit nuetral to an upward bias. Covered put writes are used when the investor’s outlook is neutral to bearish. In a covered write, profits in the futures position will more than cancel the potential adverse move in the option premium, allowing the investor to earn a profit. If, on the other hand, the futures moves adversely there will be a profit in the short option that might or might not completely offset the loss in the futures. For the covered option writer, then, the ideal market is one in which the price moves in favor of the futures contract.

Call our team at 800-972-3343 to learn how to use this strategy in a real situation.

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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5.

CREDIT SPREADS

Trader’s Edge has earned its niche as a professional credit spread trader. The bulk of our clients participate in the many advantages credit spreads offer. Credit spreads are a more conservative, lower risk strategy for trading options.

Credit spreads are designed to earn a return either monthly or quarterly with pre-determined risk. This strategy enables you to hedge an existing portfolio or even trade directional. However, the most popular method is nondirectional, selling a put and call credit spread, at the same time. Our most popular market has been the S&P 500.

To start using this low risk strategy in your own trading, call us at 800-972-3343.

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

Our recommended criteria for selling options are as follows:

The option should be overvalued (selling at an inflated price). The dollar value of the option, when sold, should not be less than $500. The strike price of the option should, at its minimum, be a certain percentage out-of-themoney from the underlying futures contract. An exit or adjustment strategy should be established prior to entering the trade.

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

Yikes, there’s risk! Trading stocks, commodity futures and options on stocks or commodities carries risk, period. You can limit risk when purchasing options, but if you continue to lose premium on a continuous basis, your losses will accumulate. A short option can carry the same risk as a futures contract; therefore there is a margin requirement. If the market moves against your short option position, your margin can never be (more than the underlying futures contract)might increase and you may owe substantial additonal capital without much warning in order to simply maintain your position. * There is substantial risk of loss in options futures trading. Only risk capital should be used.

We will work with you to determine what risk parameters and particular selling strategies are right for you. Even though we believe selling options is more favorable than buying options, the biggest advantage to you is that selling options gives you a larger margin for error. Selling out-of-the-money options allows you to profit from sideways markets, trending markets, and at times profit can occur even if the underlying market moves against the sellers position!

Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.

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Trader’s Edge currently clears its trades through RJ O’Brien, Rosenthal Collins, and Archer Daniels Midland Investor Services. We are also capable of clearing overseas trades and our clients trade at exchange minimum margins. Please call us at (800-972-3343) regarding this program or any other needs you may have. TRADING FUTURES AND OPTIONS INVOLVES RISK AND ONLY RISK CAPITAL SHOULD BE USED. COLLECTION OF PREMIUM DOES NOT MEAN RETENTION OF PREMIUM.

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Trading stocks, futures, and options involves substantial risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of futures results. Options selling may involve unlimited losses.