Sheridan Options Mentoring, Inc.

Transcription

1 Dan Sheridan Three Gurus Creating a Trading Plan Nov 10, 2009 Sheridan Options Mentoring, Inc.

2 Disclaimer No statement within the presentation should be construed as a recommendation to buy or sell a security or to provide investment advice. The information in this presentation is provided solely for general education and information purposes. Any strategies discussed, including examples using actual securities and price data, are strictly for illustrative and educational purposes. In order to simplify the computations, commissions and other transaction costs have not been included in the examples used in this presentation. Such costs will impact the outcome of the stock and options transactions and should be considered. Investors should consult their tax advisor about any potential tax consequences. Multiple leg strategies involve multiple commissions charges. Brokerage firms may require customers to post higher margins than the minimum margins specified in this presentation. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT SHERIDAN, ITS RESELLERS, AND ITS LICENSORS PROVIDE ALL PROGRAMS AND RELATED MATERIALS "AS IS", WITHOUT ANY GUARANTIES OR WARRANTIES THAT THE COURSES AND RELATED MATERIALS ARE ERROR- FREE, AND WITHOUT REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, STATUTORY OR BY OPERATION OF LAW, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON- INFRINGEMENT AND TITLE. Neither Sheridan nor its resellers nor its licensors shall be obligated, accountable or liable to you or any third party for any trading losses or damages of any kind whatsoever, including, but not limited to, direct, indirect, special or consequential in connection with this Agreement, the termination of same, your Purchases, or of your access to, or use of, the Programs in whole or in part. NO REPRESENTATION IS BEING MADE THAT SHERIDAN PRODUCTS AND SERVICES WILL GUARANTEE PROFITS AND PREVENT TRADING LOSSES. Trading Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (ODD). Copies of the ODD are available from your broker, by calling OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois Page 2

3 Creating a Trading Copyright All rights reserved. Slide 3

4 Insurance Company Page 4

5 Normal Distribution Bell Curve Days Multiplier FREE STANDARD DEVIATION CALCULATOR AT: Page 5

6 Delta Definitions IBM Date: 3/18/2008 Price $117 The change in price of an option for every $1 move in the price of the underlying security. Also called hedge ratio. MPTE"{i Theta The ratio of the change in an option's price to the decrease in its time to expiration. Also called time decay. Vega The change in the price of an option that results from a 1% change in volatility Page 6

7 Portfolio Plan Income Strategies Speculative Strategies Long Term Strategies Page 7

8 Portfolio Plan Calendar Spreads Double Calendar Spreads Double Diagonals ATM Butterflies Condors Long Calls/Puts, Diagonal Spreads OTM Butterflies Vertical Spreads Directional Calendars Long Straddles Collars LEAPS Covered Writes/Straddles Long Stock Long Term Calendars Page 8

9 Income Strategies Calendars and Butterflies focus on Time decay Iron condors focus on probabilities biliti Page 9

10 Why Diversify? Why diversify in different strategies? Why diversify vega risk? Why six trades? Why not more trades? Page 10

11 VIX 20 to 25 60% long VEGA and 40% short VEGA $10,000 Portfolio $1000 in cash for adjustments $5400 in Calendars and Double Diagonals $3600 in Condors, credit spreads and Butterflies Maximum 6-7 positions, gets a bit crazy to manage more than 6-7 positions Minimum positions 3-4. Until economy stabilizes would always have some downside insurance Page 11

12 VIX 30 and Higher 60% short VEGA and 40% long VEGA $10,000 Portfolio $1000 in cash for adjustments $3600 in Calendars and Double Diagonals $5400 in Condors, credit spreads and Butterflies Maximum 6-7 positions, gets a bit crazy to manage more than 6-7 positions Minimum positions 3-4. Until economy stabilizes would always have some downside insurance Page 12

13 VIX 25 to 30 55% short VEGA, 45% long VEGA $10,000 Portfolio $1000 in cash for adjustments $4050 in Calendars and Double Diagonals $4950 in Condors, credit spreads and Butterflies Maximum 6-7 positions, gets a bit crazy to manage more than 6-7 positions Minimum positions 3-4. Until economy stabilizes would always have some downside insurance Page 13

14 Big Picture Portfolio- Sample Portfolio $500,000 ( 50%, 40%, 10% Mix) $250,000 Long Term Strategies ( 180 days or longer)- Collars, Covered Writes, Long Stock, Long Term Calendars $200,000 Monthly Income Strategies ( days)- Condors, Credit Spreads, Calendars and Multiple Calendars, Butterflies, Double Diagonals $50,000 Speculative Strategies (1-90 days)- Straddles, Earnings Plays, Long calls and puts, Debit spreads, Reverse Calendars, Back spreads How would I make my percentages? Page 14

15 How to Scale to a Larger Trades Month Size Live Trades Per Month Monthly Profit 1 6 $10, Break even 7 12 $20, at least 3% $40, % $80, % Page 15

16 Sample $10,000 Portfolio- $1000 in cash for adjustments $9000 for trades $5400 ( 60%) $2700 RUT condor, $2700 SPY Butterfly $3600 (40%) $1800 MNX Double Diagonal, $900 IBM Calendar, $900 WMT Calendar Why the 60/40% allocation? What about VIX? How did you pick the vehicles? How would you increase the size? Page 16

17 September RUT Butterfly- Discuss the Plan Date: 8/19/2009 Price: $ SEP(30) Options Price T Prem Trade 600 Calls $ Calls $ Calls $ Delta Gamma -2.2 Theta 78.2 Vega Debit $ 5,400 Page 17

18 How long in Trade? Date: 8/19/2009 Price: $ Page 18

19 Why adjust? What s wrong? Clues? Short DELTA and SD Date: 8/21/2009 8:30 AM Price: $ SEP(28) Options Price Delta Trade 600 Calls $ Calls $ Calls $ Delta Debit $ ,400 Gamma -1.8 Loss $ (240) Theta 83.5 Vega Page 19

20 Why did I pick the 600 strike? Date: 8/21/2009 8:30 AM Price: $ SEP(28) OCT(56) Options Price Delta Trade Price Delta New 600 Calls $ $ Calls $ Calls $ Before Adjustment After Adjustment Delta Delta Gamma Gamma Theta 83.5 Theta 63.2 Vega Vega Debit $ 6,745 Profit $ (240) Profit percentage -3.6% Page 20

21 Effect of Long Call Adjustment Today and at Expiration? Date: 8/21/2009 8:30 AM Price: $ Page 21

22 Did theta or margin change? How big a loss w/out call? Date: 8/21/2009 3:00 PM Price: $ SEP(28) OCT(56) Options Price Orig Trade Price Orig Trade 600 Calls $8.40 $ $16.60 $ Calls $30.40 $ Calls $63.60 $ Delta Gamma -0.5 Theta 28.3 Vega -5.8 Debit $ 6,745 Profit $ (610) Profit percentage -9.0% Page 22

23 Mosquito still in spider web Date: 8/21/2009 3:00 PM Price: $ Page 23

24 RUT Butterfly Date: 8/24/2009 Price: $ SEP(25) OCT(53) Options Price Orig IV Trade Price Orig Trade 600 Calls $7.40 $ % +4 $16.60 $ Calls $28.80 $ % Calls $ $ Delta Debit $ 6,745 Gamma -0.8 Profit $ (170) Theta 41.8 Profit percentage -2.5% Vega Page 24

25 RUT Butterfly Date: 8/28/2009 Price: $ SEP(21) OCT(49) Options Price Orig IV Trade Price Orig Trade 600 Calls $5.00 $ % +4 $16.60 $ Calls $26.40 $ % Calls $61.30 $ Delta Gamma -1.2 Theta 57.8 Vega Debit $ 6,745 Profit $ 40 Profit percentage +0.6% Page 25

26 Stock is finally retreating! Percent up on original capital? Date: 8/31/2009 Price: $ SEP(18) OCT(46) Options Price IV Trade Price IV Trade 600 Calls $ % +4 $ % 6% Calls $ % Calls $ Delta Gamma -3.1 Theta 89.0 Vega 85.0 Debit $ 6,750 Profit $ 760 Profit percentage +11.3% Page 26

27 +4.7% Volatility Date: 8/31/2009 Price: $ Page 27

28 Ching, Ching!! Get out? Date: 9/1/2009 Price: $ SEP(17) OCT(45) Options Price Orig Trade Price Orig Trade 600 Calls $1.60 $ $7.60 $ Calls $13.00 $ Calls $41.60 $ Delta 13.2 Gamma -5.0 Theta Vega Debit $ 6,750 Profit $ 890 Profit percentage +13.2% Page 28

29 RUT Butterfly Volatility Date: 9/1/2009 Price: $ Page 29

30 Tips for consistent monthly Profits Have a trading plan Use similar vehicles What vehicles to trade? Similar il methodology How to handle losing months Profits versus maximum loss Test your trading rules with our Trade Simulator Page 30

31 Dan Sheridan Sheridan Options Mentoring, Inc. Page 31