[00:01] around the start to this bare market, I've been using three strategies that have net me over an 80% win rate. So, in this video, I'm going to be teaching you all about these strategies by covering the basics. I'm going to take you
[00:13] through an actual example for each of them. And at the end for each strategy, we're going to talk about the pros and the cons. The first and the most popular strategy that I've used this year has been credit threads. More specifically,
[00:25] that a credit spread works is you're going to start out by buying and selling options of the same type with the same expiration date. And with a credit call credit spread and you have a put credit spread. A put credit spread is
[00:40] stock is going to be above your strike prices on your expiration date. And a call credit spread is the opposite. It's bearish and you think the stock is going to be below your strike prices on your expiration date. And like I said in the
[00:53] options, we're buying and selling options of the same type. And we want to make sure that the option that we're selling is more expensive. That way, we instead of paying a debit. Because if you pay a debit, that's a debit spread,
[01:07] in order to make sure that you get a credit, whenever you're doing a call credit spread, you want to sell a call option with a lower strike price than you're doing a put credit spread, you want to sell an option with a higher
[01:21] strike price than the one that you're buying. So that's the put credit spread. credit that you get whenever you open this trade is going to depend on the strike prices that you choose. And it's also going to depend on your expiration
[01:34] date. The longer that you set your expiration date, the more credit that credit spread. And when it comes to the strike price, it's going to depend on how far in the money or how close to the money the option is. So this going to be
[01:48] based on the strike price in relation to where the stock price is. For a call and you're going to receive more credit if the stock is below the strike price. And for a put option, it's going to be in the money and you're going to receive
[02:03] more credit if the stock is below the strike price. So that's how the credit, date all work together. So let me take you through an actual example. So for example, if I'm bearish on SPY for next week, I'm going to go to the option
[02:17] chain. I'm going to set my expiration date for next Friday, which is August 26th. And I have call selected in the top because I'm bearish on the stock. spread. And the way that I'm going to choose my strike prices is by looking at
[02:32] the delta values. Whenever I'm opening credit spread, I want to make sure that the options expire out of the money and worthless. So, I want to look for low delta values because delta represents the odds of the option expiring in the
[02:45] money. So, we want the opposite to that. So, looking at this $430 call, this has a 26 delta. So, there's roughly a 26% chance of this trade going against us. Now, next week, I think is going to be pretty volatile for the market. So, I'm
[02:59] actually going to adjust my delta to a lower value. I usually keep them between 20 and 30. So, I'm actually going to go with the $432 call with a 19.4 delta.
[03:11] So, there's only about a 19.4% chance of this option going against me. And my assumption here whenever I sell this call option is I think that SPY is going to be below $432 by my expiration date, which is going to
[03:26] be on August 26th. But I don't have 100 shares of SPY to sell. So instead of putting that up as collateral, I can use a long call option by buying another
[03:38] higher the strike price that I go, the cheaper that the option is going to get. So if I just buy this $433 call, I'm going to get $18 in credit. And my collateral for this trade is going to be
[03:52] equal to the difference between the strike prices, which is 433 and 432. So just a $1 difference. We multiply that by 100, and that's the amount of collateral that we need in order to open this trade. So we need $100 of
[04:06] collateral and we're getting $18 of credit. And this is going to define our max risk for this trade. If we subtract that $18 in credit from the $100 in collateral, our max loss for opening this trade is going to be $82. So, the
[04:20] max loss for this trade is going to be a lot larger than the max profit, which is just going to be the credit that we get of that $18. But again, we want the odds to be in our favor. That way, we can make consistent income out of this
[04:33] strategy. So, if I open this now, I'm going to get $18 in credit. And if we click the continue button, then we're going to open our price. So, if you want to get filled right away, whenever you're opening a credit spread, you want
[04:46] to sell it for the lowest price. That way, the person that's buying it from you is getting a better deal. But this is if you want the option filled as quickly as possible. So, if I want it filled as quickly as possible, I'm going
[04:58] to need to sell this for $17 is what the bid just was, and now it's $18. So, I bid just was, and now it's $18. So, I would place my order for $18 in credit. I'm going to receive that credit once I open this trade. And if the trade goes
[05:12] open this trade. And if the trade goes against me where SPY is above $433 on my expiration date, then I'm going to lose my max loss of $82. But if it plays out to my expectations or SPY stays below my $432 strike price, then I come
[05:28] away with my max profit of $18. But let's say that I'm actually bullish for SPY next week. So, we're going to keep our expiration date the same since that's our timeline assumption. And then we're going to do a put credit spread
[05:41] instead of opening a call credit spread. And this is going to work just in the spread where we're going to look for around a 20 delta. So this $410 call has a 12 delta which is way too low for us and it's not going to pay us much
[05:56] credit. But if we go with the $415 strike price, this has a 22.3 delta. So strike price, this has a 22.3 delta. So there's roughly a 22.3% chance of this option going against us. and taking our max loss. So, we're going to sell this
[06:11] put option. And this is our base assumption that SPY is going to be above $415 on our expiration date again on August 26th. And instead of buying a higher strike price like we did with a call
[06:23] option, we're going to buy a lower strike price cuz the lower you go in strike price whenever you are opening a put option, the lower the price is going to be in the premium. So, we're going to buy the $414 call. And again, the
[06:37] difference between our strike prices is just going to be $1. We could actually just going to be $1. We could actually change this to buy the $410 call. And in collateral. Since the difference between our strike prices is $415US $410, $5. We
[06:54] multiply that by 100 for $500 in collateral. And the credit that we're going to get whenever we open this trade right over here is around $75. So, this means that our max risk for opening this trade, if it goes against us, where SPY
[07:09] is below our $410 strike price, our max loss is going to be $425 for opening this trade and being wrong. But if we're right on this trade where SPY stays above $415 by next Friday, we get to collect that full $75 in credit.
[07:25] And you can close out of these options anytime before the expiration date, too. So, if I open this trade right here, selling the 415 put, buying the 410 put in order to close this, all I'm going to have to do is opposite to how I opened
[07:38] it. So, I'd go about buying the 415 put back in a buy to close order and then I would sell the $410 put. And if I do this in the same trade, it closes the correctly to where I'm exiting the trade. So, that's the call in the put
[07:53] credit spread for you. Now, let's talk about the pros and the cons to using the strategy. The pros whenever it comes to credit spreads is that they're pretty consistent as long as you keep a low delta. The lower your delta value, the
[08:08] more likely that the option is to expire out of the money and worthless. So, the collect the full credit that you got whenever you open the trade. And the off chance that the stock does go against me though, then you can take larger losses
[08:21] whenever you open these spreads, which is one of the cons. you can wipe away all the gains that you've made within just a single trade. So, that's why it's on a trade and to be able to get out quickly for it. Another pro for this
[08:35] strategy, though, is that it's great for small accounts. You don't need a lot of money in order to get started with credit spreads. You only need the difference between the strike prices. So, if you have $1 difference in strike
[08:48] collateral. So, if you're starting out options, this can be a really great strategy for you. But the problem with this is if you don't have enough to either buy or sell 100 shares of your
[09:02] stock, you're going to need to close your credit spread before it expires if you think the stock could land between your strike prices on your expiration date. And this is what's known as pin risk. Pin risk is whenever your options
[09:16] both expire in the money at 4:00 and your brokerage starts to exercise and assign them to you, but then one of the options goes out of the money. And in exercised or assigned to have to buy or sell 100 shares of your stock. And if
[09:33] that, then your account is going to be put in a deficit. And this can add up to a lot of money depending on what you're trading. So, if you have a small account spreads, definitely close your options before they expire if you think the
[09:48] stock will be between your strike prices on your expiration date. But that's enough about credit spreads. Now, let's talk about our next strategy, which is going to be high delta leaps options. LEAP stands for long-term equity
[10:00] by the name that these options are going to be longer in expiration date. And specifically, these are going to have over a year until their expiration. And be a call option or a put option depending on if you're bullish or
[10:16] bearish for the stock. It works just like it would with a weekly option or a monthly option that you're probably used to. But again, the expiration date is to be bullish for a longer period of time for a year instead of a few weeks.
[10:31] So, that's how Els works. And the longer that you set your expiration date, the to open your option because you're giving the stock more time, which means that there's going to be more volatility involved in this option. So, you're
[10:43] paying extra for that added volatility. You'll also pay more for your option the deeper you go in the money. So, with a lower strike price on a call option, And with a put option and a higher strike price, again, you're going to pay
[10:57] price, expiration date, and the premium work. Now, let's take you through an actual example. So, for example, if I'm bearish on SPY for the next year, I'm bearish on the stock. And then I'm going to set my expiration date to the one
[11:13] year out, which would put us with the September 15th expiration of 2023. And whenever I'm choosing my strike price, I want to make sure that the odds are in my favor and this option expires in the money. And again, we can determine the
[11:29] likelihood of our option expiring in the money by looking at our delta values. Now, for a leaps option, I generally keep this between 70 and 90. So, if we
[11:41] go with this 460 put, this has a 55 delta, which is way too low. But if we delta, which is way too low. But if we go with say the $500 put, this has a 69 delta. So, I'm going to buy this put option. And right now, this is going for
[11:55] $8,125. So that's my max risk if this trade goes against me. This means that I can lose $8,130 if SPY is above $500 by my expiration date of September 15th, 2023. But if the
[12:11] trade plays out like I'm expecting to where maybe SPY drops from $423 at the moment to something like $400, in that case, this option would have $1,000 of
[12:23] intrinsic value, which is the difference between my put strike price and my target price of $400. And I'm paying $8,000 in order to open this. So this is around a 25% return. And if SPY just continues to get
[12:38] obliterated, then I can make even more profit. But again, if SPY is above 500, then I lose $8,000 for this trade. But let's say I take the opposite assumption where I think SPY is actually going to be bullish for the next year. In that
[12:51] be bullish for the next year. In that case, I would look for maybe a 80 or 90 delta because I'm less certain on the market going up over the next year. So, I'm going to choose maybe a $350 strike price, which has an 82.3 delta. And for
[13:06] this option, I'm going to pay $9,600 or almost $9,700 in order to open it. So that means if this trade goes against me where SPY this trade goes against me where SPY goes below $350 by my expiration date of
[13:19] September 15th, 2023, then I can lose as much as $9,700. But let's say the trade actually goes in my favor where for some reason SPY goes from 423 right now to
[13:32] $500. In this case, this option would have $15,000 of intrinsic value or again the $500 target price that I set and the $350 call strike price that I chose. So,
[13:45] in that case, I would come away with over $5,000 in profit for this trade. And that's how the leaps works. Now, let's talk about the benefits and the risks of using the strategy. The pros when it comes to Elaps options is that
[13:58] it gives you plenty of time for the stock to go in the direction that you But the problem is that you're paying more for the added time value and that you're completely wrong on the trade. If a stock just continuously goes against
[14:13] you, then if it goes out of the money and expires out of the money, then you lose everything that you put into the option. But at the same time, if the period of time, then you have more to gain out of that. And one of the
[14:26] beautiful things about LEAPS options is that the risk is pretty simple to understand. you can only lose what you put into the trade. So, if we spent $2,500 for a leaps option, we can only lose that $2,500 that we put in. And
[14:41] anything that's associated with selling an option. So, that's the pros and the cons whenever it comes to a leaps option. Now, let's talk about our final strategy, which is going to be the wheel strategy. Now, the wheel strategy works
[14:55] in two parts. It's going to start off by selling a put option. And whenever you sell a put option, you're agreeing to buy a 100 shares of your stock at the strike price that you choose. And then once you've been assigned to own those
[15:09] 100 shares of your stock at your strike price, you can use those 100 shares to sell calls against. This is the second half of the wheel strategy. And whenever you sell a call option, you're agreeing to sell 100 shares of your stock at the
[15:21] strike price that you choose. And when it comes to strike prices, expiration longer that you set your expiration date, the more credit you're going to receive for selling your option. Since the stock can experience more volatility
[15:34] in a longer time frame, you're going to get paid accordingly for taking on that risk. And the further in the money your option is, the more that you're going to get since that option has intrinsic value. But you don't want to sell in the
[15:46] money options. Usually, you want to sell options that are out of the money in order to decrease your odds of getting assigned to either buy or sell 100 shares of your stock. So, that's how strike prices, expiration dates, and the
[15:59] credit works. So, let's get into our example. So, for example, if I want to buy a 100 shares of SPY right now, it's trading for $423. So, if I wanted to buy the shares just regularly, I would spend $42,300
[16:15] in order to open 100 shares. And I wouldn't get paid any money in order to do this, which is the benefit of selling put options. So, we're going to sell a put option in order to buy 100 shares of SPY. And we're going to stretch our
[16:29] expiration date cuz today is August 19th and we're not going to get much credit. So, I'm going to stretch the expiration date for maybe two weeks out to 2nd. And then I'm going to choose a strike price that's below the current
[16:43] market value. So, I'm agreeing to buy a 100 shares of SPY for a small discount. 100 shares of SPY for a small discount. So, I'm going to sell maybe the $420 put and I'm agreeing to buy a 100 shares of SPY for $420.
[16:58] to make this trade, which means that I need $42,000 in cash to put this trade on. And whenever I open it, I'm going to get paid $450 in credit for taking on
[17:10] that risk. And because I'm receiving this credit, this is going to lower my this credit, this is going to lower my break even price by that $450 in credit. So my break even price would be $420US $450, which would be a break even of
[17:24] $41,5.50. And this means if SPY is below 41550, then I'm going to be at a loss if I decide to sell my shares. But I can wait it out for SPY to go back above $41550 and then I'll be at a profit. But if SPY
[17:40] is above $420, our strike price, buy our expiration date. Then we get to keep the cash that we put into this trade of $42,000. We get to keep that $450 in credit. And then we can sell another put option for maybe another twoe expiration
[17:54] date. But eventually we're going to get filled to have to buy 100 shares of SPY. And once we own 100 shares of SPY, then we can start selling call options. So whenever you sell a call option, you want to go with a higher strike price
[18:07] than what current market value is. And the way that I choose my strike prices again is just like credit spreads. I like to look at delta values, the odds of the option expiring in or out of the money. So if I look at say the 430 call,
[18:21] this has a 33 delta which is a bit too high. But if I go with say the 433 call, this has a 26 delta. So I'm going to sell this call option. And whenever I
[18:33] sell this $423 call, I'm agreeing to sell my 100 shares of SPY at $433. If spy is below $433, then I get to keep my shares and I get to keep the credit
[18:45] that I'm collecting, which in this case is $29 in order to open this trade. And that credit that I'm getting is going to raise my break even price to my strike raise my break even price to my strike price $433 plus our $210 in credit for a
[18:59] price $433 plus our $210 in credit for a break even of $43,510. break even of $43,510. This means if spy is below $43510, if I bought it for more than that, then I would take a loss. But if I bought it
[19:11] I would take a loss. But if I bought it for less than $43,510, And that's the wheel strategy for you. You start out by selling the put option can start to sell call options against those 100 shares that you own. Now,
[19:25] Now, the pros whenever it comes to the wheel strategy is you get to choose what you buy and sell your stock at whenever you choose your strike price. So, you strike price than what the current market value is for the stock, which
[19:41] means that you're agreeing to buy the stock at a discount. But the problem is, if the stock keeps going down past your strike price, you have to buy those 100 shares. And if the stock continues to sink, you're going to lose money on
[19:54] those 100 shares of the stock. And this works the same way with a cover call. If looking to sell call options and the stock just keeps depreciating, then you're going to lose money on owning the
[20:06] option, you can agree to sell the stock at a higher price than what the current market value is. So in this way, you're getting a little bit of a better deal. But in order to get filled to sell your 100 shares, the stock has to be above
[20:19] your strike price on your expiration date, which means that you could have potentially sold it for a higher price. And with put options, you could have potentially bought the stock for a lower price had you waited it out. And another
[20:31] pro whenever it comes to the wheel strategy is that it makes for a pretty decent amount of income. Last month, I own 200 shares of AMD. And because I own those 200 shares, I was able to sell cover calls and make $1,200 for owning
[20:47] those 200 shares. That was enough to pay my rent for the month. So, this is a really great strategy if you're looking for some extra income, but credit spreads can also work in kind of the same fashion, but you're just not going
[21:00] to have the same equity since you're not buying into the 100 shares of a stock. got for you today. Hopefully, you found this video useful. If you did, show some love, leave a like. Thanks for making it all the way to the end of this video.
[21:14] And thank you to all my patrons for the support. And as always, remember to stay positive, stay green. I'll catch you in the next one.