Meetup Slides for October 8, 2018
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This document provides an overview of a presentation on disciplined trading and equity options strategies. It discusses who is providing the presentation, defines disciplined trading, and gives an example of an iron condor options trade on the S&P 500 index. Key points include that disciplined trading involves predefining risk, cutting losses, and using a systematic money management plan. The iron condor strategy aims for a 8% return over 3 weeks by establishing a 95% confidence interval for the index's movement and selling options above and below that range. Historical data shows the strategy has a high win rate and positive expectancy when volatility is between 10-18 on the VIX index.
Meetup Slides for October 8, 2018
- 1. Educating Since Jan 2017
- 2. 1. Who are we? 2. What is Disciplined Trading? 3. A Practice Disciplined Trade 4. Videos for the week Meetup Agenda
- 3. This is a presentation prepared for Education purposes only. Neither Vancouver Disciplined Trading Hub (VDTH), Round Table Educators (RTE) or Prosperis Passive Income Strategies (PPIS) nor any of its personnel are registered broker-dealers or investment advisors. We may mention that we consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. This does not mean that we are telling you to trade these exact strategies or securities. Keep in mind that we are not providing you with any specific recommendations or personalized advice about your own 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. Trading ALWAYS involves a risk of loss, even if we are discussing strategies that are intended to limit risk. VDTH, RTE and PPIS are not subject to trading restrictions. We could have a position in a security or initiate a position in a security we mention at any time. Disclaimer
- 4. Who are We? MONDAY 6:00PM CEDAR COTTAGE PUB, VANCOUVER www.meetup.com/vdthub www.slideshare.net/vdth Educating Since Jan 2017
- 5. Who are We? Karim Adatia, CPA Tax Auditor (2008 – 2016) Full-time Stock Options Trader (2016 - Present) Financial Educator (2016 - Present) www.ppis.ca TRADING INC. Canada Revenue Agency
- 6. Who are We? Maki Yanagi, LLQP Financial Services and Adviser Professional Referral service Career & Academic Consultant
- 7. What is Disciplined Trading? Trade based on: 1) CONVICTION (based on what is PERCEIVED in any given moment.) 2) CATALYST (A fundamental or technical reason/opinion) 3) COMPLACENCY (Eg. Wait for a bull market to return Convert a trade to an investing position) What a Disciplined Retail Trader will Do … 1) PREDEFINE their risk BEFORE taking a trade 2) CUT THEIR LOSSES without hesitation (when the catalyst fails) 3) MANAGE using a SYSTEMATIC and CONSISTENT money management plan What Most Retail Traders Do…
- 8. 1. Who are we? 2. What is Disciplined Trading? 3. A Practice Disciplined Trade 4. Videos for the week Meetup Agenda
- 9. What are Equity Options? An option is a contract that to buy or sell a certain amount of stock. allows you BUYING an option gives the owner a RIGHT SELLING an option gives the seller an OBLIGATION RIGHT or OBLIGATION
- 10. What are Equity Options? Coupons for stocks Book costs $6 Expires: Dec 31, 2018 TERMINOLOGY PREMIUM $6 STRIKE PRICE $10 RIGHT OR OBLIG. RIGHT EXPIRATION Dec 31, 2018 MULTIPLIER 1
- 11. Why trade Equity Options? Leverage = 1 to 100 1 option contract controls 100 shares Bullish Stock Trader Apple Inc. (AAPL) costs $100.00/share 100 shares would cost = $10,000. Apple Inc. share goes to $105.00/share Stock Trader makes $500 or 5% profit. Bullish Options Trader Apple Inc. (AAPL) costs $100.00/share 1 contract costs $5.00, so trader pays $500. Apple Inc. share goes to $105.00/share The Option contract goes to $6.80. Options Trader makes $180 or 36% profit.
- 12. SELLBUY (SHORT/WRITE)(LONG) THE RIGHT TO: THE RIGHT TO: THE OBLIGATION TO: THE OBLIGATION TO: Buy Stock Sell Stock Sell Stock Buy Stock PUTCALL WHEN WE DO ALL FOUR – WE ARE NON-DIRECTIONAL!
- 13. Non-Directional Trade No opinion on whether market goes up or down.
- 14. The Iron Condor Options Strategy 2785 2885 2995
- 15. Iron Condor Trade Characteristics 1. Option Writing Write: To Sell an Option 2. Range-bound Confidence Interval: 95% 3. Index-linked Ticker: SPX 4. Out-The-Money No Intrinsic Value, Only Time Value 5. Average Return Goal of 8% in 3 weeks 6. 25-day Timeframe Guaranteed Time Decay
- 16. The Guarantee with Options – Time will Decay $$$ Time Remaining Until Expiration Date (Days) Option Time Value ($) SELL BUY BACK 90 60 30 0
- 17. SPX (S&P 500) SHORT CALL: = 3015 2885 29852785 95% CONFIDENCE INTERVAL : Under Normal Volatility Conditions TRADING RANGE: 2785 – 2985 SHORT PUT: = 2815 LONG PUT as protection 5 points away LONG CALL as protection 5 points away 29902780
- 18. THE VOLATILITY INDEX – TICKER: VIX 18
- 19. Practice Trade WEEK OF: JAN 2 - 6 2017 STEP 1: INFORMATION -105.00 -100.00 (SPX VALUE) +100.00 +105.00 Long Put Short Put Short Call Long Call STEP 2: TRADE Watch Video: STEP 3: MANAGEMENT Watch Video: CALL ALERT: SPX Value + 65= PUT ALERT: SPX Value - 65= YOUR PRACTICE TRADE Get spreadsheet from www.ppis.ca/Meetup
- 20. WORST DAY FOR THE S&P 500 IN 2017 2400 24652335 2.6% away (Put Alert) Index Value (Call Alert) 2.6% away
- 21. WORST DAY FOR THE S&P 500 IN 2018 2740 28052675 2.4% away (Put Alert) Index Value (Call Alert) 2.4% away
- 22. Our Track Record (2017- Mar 2018) www.meetup.com/VDTHub *Average Invested = $5,000/week
- 23. Our Track Record (> Apr 2018) www.meetup.com/VDTHub *Average Invested = $5,000/week
- 24. Determining Expectancy Steps for calculation expectancy: 1. Calculate your win and loss ratio 2. Calculate your reward to risk ratio 3. Combine those two ratios into an expectancy ratio SPX Trade Expectancy 1. Win and loss ratio: Win ratio = Wins/Total Trades Loss ratio = Losses/Total Trades 2. Reward to risk ratio: Avg. Winner / Avg. Loser 3. Expectancy ratio: (Reward to Risk ratio x Win ratio) – Loss ratio Before Apr 2018 After Apr 2018 55/60 = 92% 24/26 = 92% 5/60 = 8% 2/25 = 8% $242.86/$1,520 = 16% $575.00/$100 = 575% (16% x 92%) – 8%= +6.72% (575% x 92%) – 8% +523.08% Win Ratio: Loss Ratio: R2R Ratio: Exp Ratio:
- 25. How much does the SPX Move on a Daily Basis? www.investing.com/indices/us-spx-500-historical-data+ 92
- 26. How much does the SPX Move on a Daily Basis? www.investing.com/indices/us-spx-500-historical-data+ 61
- 27. How much does the SPX Move on a Daily Basis? www.investing.com/indices/us-spx-500-historical-data+ 17
- 28. How much does the SPX Move on a Daily Basis? www.investing.com/indices/us-spx-500-historical-data- 40
- 30. VIX Value Comment 95% c.i. Trading Range <10.00 Not Volatile Enough Too narrow, 100 strikes doesn’t pay enough $ 10-15 Average Volatility Average, 100 strikes away is ideal. 15-18 Perfect Volatility Excellent, >100 strikes away pays enough $. >18 Too Volatile Opportunity to get 150~200 strikes away The Volatility Factor in SPX Iron Condors
- 31. The Volatility Factor Trading Range = 2270-2030 = 240 Distance on either side = 120/2150 = 5.58% Return = 8% After Commissions 2030 2150 2270 1990 2150 2300 Trading Range = 2300-1990 = 310 Distance on either side = 155/2150 = 7.21% Return = 8% After Commissions 1 2 The Volatility is Higher
- 32. Apply with caution Disciplined Traders … 1) Predefine their risk before taking a trade 2) Cut their losses without hesitation 3) Use a systematic money management plan to make consistent profits. This Strategy… 1) Predefines your risk 2) Has an adjustment plan 3) Can be systematic / automatic with trade alerts Has positive expectancy (is therefore consistent)
- 33. Takeaways!! 1) Be Disciplined! Whether you are trading stocks, options, currency or futures. 2) You Can Make Money by being Non-Directional! 3) Equity Options give you leverage that stocks can’t! 4) If you are interested in this particular strategy, (1) Come to VDTH Meetups each week or (2) Follow the Practice Trades on Discussion Board. and only then…
- 34. Full Workshop Every 3rd Wednesday of the Month SFU Harbour Centre (Downtown) Register at : www.ppis.ca Workshop (2.5 hours) + Workbook + 1-1 Coaching (1 hour) + Weekly support via VDTHub Meetup Next Workshop: Oct 17, 2018 Methodology in Detail Adjustment / Stops Entry Criteria & Risk management Taking Advantage of Volatility
- 35. US ON FACEBOOK www.facebook.com/ppistrategies If you Liked the Presentation, Write us a review! www.ppis.ca
- 36. 1. Who are we? 2. What is Disciplined Trading? 3. A Practice Disciplined Trade 4. Videos for the week Meetup Agenda
- 37. Videos
- 38. karim@ppis.ca
- 39. Backup Slides
- 41. NON- DIRECTIONAL TRADES Stocks and Equity Options 3-month Program US$799 DIRECTIONAL TRADES FOR VIDEO ABOUT MMT PROGRAM: www.youtube.com/watch?v=hzhJBdGNwyo $200 off for VDTH Meetup Members (Contact us for details) FB PAGE: www.facebook.com/MasterMindTraders.official/ www.mastermindtraders.com/freevideos
- 42. OUTCOMES WHEN TRADING OPTIONS If you believe a stock will go UP: BUY A CALL • You are betting the price of the stock will go UP • The person you sell the call to is betting the price will go DOWN or STAY THE SAME When you buy a call, you can win 1 out of 3 ways When you sell a call, you can win 2 out of 3 ways YOU WIN 1 NEUTRAL 2 YOU LOSE 3 YOU LOSE
- 43. OUTCOMES WHEN TRADING OPTIONS If you believe a stock will go UP: SELL A PUT • You are betting the price of the stock will go UP or STAY THE SAME • The person you sell the put to is betting the price will go DOWN When you sell a put, you can win 2 out of 3 ways When you buy a put, you can win 1 out of 3 ways YOU WIN 1 NEUTRAL 2 YOU WIN 3 YOU LOSE … Maybe
- 44. OUTCOMES WHEN TRADING OPTIONS If you believe a stock will go DOWN: BUY A PUT • You are betting the price of the stock will go DOWN • The person you sell the put to is betting the price will go UP or STAY THE SAME When you buy a put, you can win 1 out of 3 ways When you sell a put, you can win 2 out of 3 ways YOU WIN 1 3 YOU LOSE NEUTRAL 2 YOU LOSE
- 45. OUTCOMES WHEN TRADING OPTIONS If you believe a stock will go DOWN: SELL A CALL • You are betting the price of the stock will go DOWN or STAY THE SAME • The person you sell the put to is betting the price will go UP When you sell a call, you can win 2 out of 3 ways When you buy a call, you can win 1 out of 3 ways NEUTRAL 2 YOU WINYOU WIN 1 3 YOU LOSE … Maybe
- 46. VIX During the 2008 Financial Crisis Takeaway: When VIX is > 18, Don’t Trade This Strategy!