[00:02] repaired. I would say quite often, I would say it's in the high 80-90%. >> Traders love to share how successful their option strategies are. But no
[00:14] matter which strategy you do, some trades fail. What do we do then? In this interview, you will get useful tips about how to turn around a losing trade. Welcome Soheb Nur Mohamed.
[00:29] >> Hi John, nice to be back. >> Good to have you back here. And let's start off with this order actually tricks to learn about how to turn around losing trades. >> Yeah, well, in my view, I think that
[00:43] once you've been trading for as long as I have, you kind of pick up a kind of playbook or a trading plan as as some traders call it in terms of what to do when something goes wrong and what I like to say is
[00:57] trade entry, but you've got to have a hopefully I can give your audience some value today in examples of where things have gone wrong and how I managed those into into profitable situations.
[01:12] >> And our plan is to go through three trades that went wrong. Two that you already closed out and one that you're actually in the middle of right now. But first, Soheb, tell us a little bit about yourself.
[01:26] >> Yeah, I've been trading for about 6 to 7 years. Started off as a forex trader, was pretty much a break even slightly profitable trader and then I came across the concept of selling puts where you could make money being 80% right and
[01:41] put, I've been absolutely hooked from there. And since then I've managed to, you know, double double the trading account and the way. And through like I said, throughout that process, I've managed to
[01:55] get to a place of where I built a mechanical mythology of a methodology rather of managing trades. And I'm very big on the tasty network for those who who watch tasty trade and how they kind of manage
[02:10] positions and I've been kind of learning the mechanics of that and adapted that >> And where are you based? >> I'm based in London inside the UK. So, anyone that's, you know, around, please hit me up. It's always good to speak to
[02:25] Europe. >> So, hey, before we get into your example trades, what type of trades or strategies do you usually do? >> So, I predominantly do undefined risk. So, that's, you know, just selling your
[02:40] calls, strangles, straddles, etc. I have started to dabble in more defined risk trades. So, about 20% of my trading is defined risk. I really am a big fan of broken wing butterflies, iron condors,
[02:55] even put spreads and and credit spreads. So, yeah, but predominantly I like to do undefined risk, which in the examples that we'll go through gives you the best possible chance and more fluid adjustments to turn losers into profit.
[03:10] >> And as we said, we all have trades that go against us. How often do you find that you are able to turn a losing trade around? >> Most of the time, I would say quite often. I would say it's in the high
[03:24] 80-90%. Again, it's still trying to be mechanical, but the question really then becomes is how long does it take you to make a loser into a profitable trade. Think I mentioned there inside the last interview of a Tesla position that, you
[03:38] know, I was in for nearly two two to three years. But most of the time and examples that we'll go through, generally between one to three months when I look to when a trade starts to go against me to kind of to that round into
[03:51] becoming a scratch trade, small loser, or most of the time a profitable trade. >> So, this interview is a bit different than most of those we do as we are not going to cover any specific strategy. Rather, we are just going to look at
[04:06] three specific trades and look at how you turn them around. And then we will sum up a bit with some useful tips for how you can adjust trades that go against you. Sorry to interrupt, but I want you to meet Wendy,
[04:23] interrupt, but I want you to meet Wendy, my new trading buddy. Her job is simple. trader. >> Stick to your plan, John. >> Wendy is an AI trading coach. I can drop in a chart and she analyzes
[04:38] it. Points out key levels, structure, and what I should pay attention to. She's also a great sparring partner when I'm testing new ideas. But, the most important part, she keeps me accountable.
[04:52] >> Wait for confirmation, John. No setup, >> Exactly. If you want to check it out, you get 25% off the annual plan or the first 3 months with the code setup profits.
[05:06] Link is below. All right. Back to the interview. But, what is the first example we will look at, Sohib? first example we will look at, Sohib? >> So, the first one is an AMD put that I
[05:19] sold the day of earnings. What I like to do is I like to sell puts as an opening trade the day of earnings or right before the close, announcements, we get the highest implied volatility, so that the the
[05:34] short premium that I sell is as high as as it possibly can. So, on February the as it possibly can. So, on February the 3rd, I opened a standard 20 delta put with only 2 days to go to expiration cuz this is pretty much February close. The
[05:49] black line is the current price where AMD's trading at 242. And again, I sold put uh 6th of February expiration, picked up a $1.13 for a 2-day trade to go that far out, which is why I like these types of
[06:05] trades. And the put break even is sitting at 211, which is obviously your strike minus the credit you receive. The goal is is what I generally like to do is close out at 50% of initial credit received. So, in this example of a
[06:19] $1.13, I'm looking to get 50 55 cents >> And you could tolerate the 30-point drop >> That's the plan, right? Again, when you go undefined as what I have here is that
[06:31] if something that does does go wrong, then I'm either going to take a really then I'm either going to take a really big loss or I look to manage it. And as we all know, AMD's at all-time highs as of this as of this recording, so this is
[06:43] probably a bit counterintuitive for where we're going backwards, but if we the the next day AMD absolutely dropped on earnings. It dropped 17% post earnings on when the market opened.
[06:58] And now I've got a situation where I've got a 12 12 and 1/2 dollar uh in-the-money put where I've also breached my break even. A take a loss, right? And take a 1,200
[07:16] uh 1,250 dollar loss, or I can look to roll the position and do something with this to try to save it. And as we talked about earlier is I went into this trade knowing what is the next step that I that I need to do. What I decided to do
[07:31] was is I I decided to roll my put down in strike, so I rolled down from the in strike, so I rolled down from the 21250 down to the 200, and roll out in time. So, I went from the 6th of February up to the 20th of March. So, I
[07:46] pushed it to the March monthly cycle. And I did that for a credit. So, I And I did that for a credit. So, I captured another $2.16 in credit, giving me a total of $3.29 of premium in the trade. And you can see
[07:59] here visually what that has done is it's now moved my put break even, which is you'll as we go through this will start to become more and more relevant, is my put break even is now out of the money. So, one of the things I start to look at
[08:13] is whether my strikes in the money or at the money, I'm trying to look at where the stock is in relation to my put break even. That's the That's the situation where we were on the 4th on the 4th on
[08:26] the after the market opened from from there. We fast forward to another day. AMD continues to go down, and it falls by another 4%. So, now what we have the
[08:38] stock sitting at 192, and you can see here that my put break even has also been breached. So, I'm again like $8 deep inside the money here. What's happening here? So, if you look at one of the things that I like to look
[08:53] at is what's my delta or what's my delta exposure inside this trade. I've got a probably sitting at the time around the 60 delta mark or 55 60 delta. So, what that basically means is is that I'm I'm directionally
[09:09] long on this trade, but the stock keeps going down. Right? So, it's as if I'm holding like 60 I'm short long 60 shares of AMD. So, what I like to do here in this scenario is that I decided to convert this position into a
[09:26] strangle position, and I did that by selling the 230 call. Now, opening the 230 call at the same expiration, so now I've got the 200 and 230 strangle position. What does this do to my trade? So what it firstly does is
[09:43] I obviously I receive more credit. I receive $4.65 for opening the call and therefore my total credit now is sitting just under $8. And what that is done is now increased my put break even side
[09:56] and got my put basically at the current stock price. But what it also does I now have added short delta into the position. So my delta risk now is not
[10:09] completely flat but it has reduced slightly which then my day-to-day P&L slightly which then my day-to-day P&L volatility is a bit more calmer if AMD continues to go down. So that's why I've done that move is collect more premium
[10:23] and add short delta to reduce my overall delta risk inside the trade. But I'm currently stands. >> And to repeat if there are any beginner traders watching, what is a strangle?
[10:38] >> So a strangle is an where and is generally is where you sell a put strike and a call strike where the call strike is above the above I'm talking that way cuz this position or our future positions start going into
[10:54] inversions and all these other wonderful things that will that will talk about. But a general opening trade strangle is an out the money so the stock price is current price and a put below the current
[11:06] price. And that I generally open that as a delta neutral trade. So I'll open a 20 delta call, 20 delta put net net my delta is zero. So it's classified as a delta neutral kind of trade. But you can also skew it as well. So this is kind of
[11:21] a skewed strangle where I where my put strike is in the money and my call strike is way out the money. But yeah, so it's selling an out of money and out of money call and out of the money put at different strike prices. As time goes
[11:35] on, you know, it's the price instantly started to go back up and it's now trading inside my strangle, which is absolutely fantastic, exactly where I want the position to be. And you can see here it challenged my put strike once,
[11:49] went back up, then it challenged it again, went in the money, went back out into a strangle, and then went back in the money again. So, on the 28th of February, I'm in a bad place, a lot better place than I was before, but my
[12:02] put was continually being challenged. Now, at this point, if I look at the again, my delta on the put side is probably sitting around a 45-50, so long 45-50 deltas. And as the theta decay kicks in and time
[12:19] And as the theta decay kicks in and time moves on, this call delta is starting to like also decay, the short delta is coming out of this option. And if I look at where my break even is at 237, if I look in what I do is I look at the
[12:33] implied volatility move for the 20th of March, what I can see is is that my call break even is so out of the expected move, it's like a one and a half standard deviation move uh for my call break even to hit. So,
[12:48] with having low deltas on the call, my break even is quite far out the money on the call side, I need to really make an adjustment and make this call work harder for me to really provide more protection on my on
[13:02] really provide more protection on my on my put. So, what I decided to do was my put. So, what I decided to do was is I decided to roll down my call is I decided to roll down my call uh from by $12.50 to the $222.50.
[13:16] What has that done to my position? That again has added an additional dollar of premium to the trade, so my total credit now is sitting at $9. And it has increased or lowered my put break even down to 190.99.
[13:31] So, overall, I'm reducing the width of my strangle, increasing my short deltas, and picking up more premium in inside the trade. So, at the moment, if AMD was to expire worthless at 198.62,
[13:47] I would make money despite my put being in the money because I'm still within my in the money because I'm still within my break even zones. So, I'm watching where untested side is with and where the delta is sitting and do I need to bring
[14:00] that in to reduce some of my delta directional risk to the upside. >> Well, one question So, here here you have made a like a graph illustrating this. How do you keep track of this in real trading by creating a graph like
[14:14] this or some trade log or >> Yeah, so my broker is Interactive Brokers, so every week I download my my my my statement and I've got, you know, with the Google Sheets as well, so I copy the raw data in and then it
[14:27] basically populates a graph like this. But you don't The reason why I do this visually is more for my coaching clients education purposes, for my own YouTube channel, etc. But I generally just have a trade log that says every adjustment
[14:40] just adds the premium or minus the premium if I'm taking debit of how much evens are. And then what I also like to do as well is I I use TradingView as well, so I put the lines on my break evens in there. And when we go through
[14:56] can kind of show you what that looks like, so it's easy for me to visually see am I breached, am I not breached, etc. So, then we go on to a few days later to March the 3rd. AMD drops again making a new low from when we first
[15:11] making a new low from when we first started this trade to 190.95. And my put's $10 in the money. I'm my long delta exposure's increasing. And again, I decided to do another adjustment. And
[15:25] we've still got like 17 days still go till expiration. At this point, I could roll this out into the April monthly cycle, but I feel that I can still exit this position within the 20th of March expiration. So,
[15:40] what I decided to do instead of rolling the whole position out into April is roll down the untested side. Again, staying mechanical to my trading plan, picking up premium. So, I picked up another two $2.91 in credit, giving me
[15:56] just under $12 in the trade. I then also increase my short delta to to counteract my long delta that I have. And again, now my break even, as you can see now with all these adjustments, my break even is widening to the downside.
[16:10] So, I'm trying to follow that stock as the stock moves against me to put myself inside of a better position. >> And so far, you have collected credits in every adjustment. >> Correct, yeah. Yeah, there are times
[16:23] trade, but there are times where I buy the guts, sell the wings where I do take I use some of this credit, take a debit to widen up my strikes. So, in the examples I'm showing, I don't do any of those in these examples. But again,
[16:38] the whole point of this is keep collecting credits, which again you can either buying back the whole trade for cheaper than $11.92 in this example, or again improving your strikes by taking a small
[16:52] debit uh to give yourself a wider break even cuz your cuz your actual strikes are now wider away from the current price. So, then we go down to the 16th. And fortunately, I was able to now close I closed the trade. So, we were in this
[17:07] trade for 41 days, and we were we left it off here. It went up, went down, went back into my $5 wide strangle that that I had on. And then it went down again out of the money, and even though the put is in the money,
[17:22] I was able to close this whole trade out for a debit of 822, which again I've collected 1192 in the trade. So therefore, I netted out with a $3.70
[17:34] And again, this is again staying mechanical, most people would just leave this call over here. Whereas, making these over here. Whereas, making these adjustments has allowed me to collect
[17:48] premium and use that premium to give that premium back to get out of this position in a profitable trade. And the funny thing is, if we remember, I collected the $1.13 on trade entry. I was looking to make 50 55 cents, and
[18:00] was looking to make 50 55 cents, and I've actually closed out at a $3.70 And just to visually kind of show what this kind of looks like here, is this again back in February the 4th where I rolled my 212 up to the uh to the up to
[18:15] the 200 put level, where I took that $1,200 loss when my uh put was $12.50 in the money. Fast forward to when I bought back my uh strangle for the $8 and something uh debit, which again netted me out at $360
[18:32] profit net of commissions uh from this particular trade. So, a nice example of showcasing a really deep in the money put with 2 days to go till expiration,
[18:44] being mechanical and able to recover that 1,200 loss, but also making $360 profit at the uh at the end of it. >> You you are trading strangles, which are selling both a naked put and a naked call, which also requires quite a bit of
[19:00] buying power, maybe beyond what a lot of traders have. Many traders do credit spreads. In this case, started with a put credit spread, later turn it into an iron condor, which where after you have added a call credit spread. How does
[19:16] this relate if you trade spreads? >> I'm not going to sit here and tell you that you can adjust as fluidly trading spreads because you can't. And the analogy I I like to use when you trade spreads or iron condors is that you're
[19:31] climbing up a hill with rocks rocks in your backpack, right? Because you're carrying that wing with you wherever you go whenever you adjust. I do have clients that have smaller smaller sized accounts can only trade uh spreads or
[19:45] iron condors. What I like to do firstly mentally is if I'm selling a put spread that's $5 wide, collect $1, so I've got $4 risk in the trade. Mentally, I go into that trade that I'm going to lose $4 because you have to be okay with
[20:01] that. That's the first thing. With undefined risk, I never go into a position mentally thinking that I'm going to lose, right? I always try to recover, at least attempt to recover. So, that's the first
[20:14] thing. Again, mentality, defined risk and undefined are two different animals. The second thing is knowing that in the example of where you sell a $5 collect uh collect one risk is four, is that you can still be mechanical in
[20:29] spread, if the position starts to go against you example, your max risk is $4. So, what you can do similar to what I did, instead of opening a naked call, you can open the
[20:44] uh the the call spread. So, let's say you collected a dollar on the call spread. So, now your max risk has changed from $4 to $3 by making that move. Whereas, if you didn't know that you could convert a position from a put
[20:58] credit spread, sell the call spread, and create an iron condor, then that's the piece then of the education of you know your options education. So, that's the down, again, similar to what I've done here,
[21:12] I've rolled down the naked call to kind of the same thing with the credit spread because your risk is still the same even breached, your max risk is in the example now is $3. Let's say you collect
[21:26] another $0.50 by rolling down, now your max risk is $2.50. Again, it's really max risk is $2.50. Again, it's really hard to close for a profit, right? When your spread goes against you based on again, you have to keep buying and
[21:39] But, what you can do with spreads is reduce cost basis, the key difference is mentally going into the trade that I'm willing to take but I do know if a trade goes against me, that $4 could turn into $3 or $2 by
[21:57] rolling down the untested side, going into an iron fly, which is the straddle undefined equivalent, and try to at least close out for a dollar loss from which was originally four. The only way you can really
[22:11] save it from a profitable perspective is A, the stock has to comply, it has to go back and like up in this example, or or B, you add more risk by rolling out further in time and or increasing the width of your spread, going from a $5
[22:27] some accounts can't do that. So, therefore, you have to go with the mentality that you can potentially lose or reduce or the mentality I would go with the trading undefined risk.
[22:42] >> All right, we'll move to the next example. >> So, this is a strangle on Walmart. So, again, this is very, very similar to uh to the AMD position. It was a short while looking as a four-day trade.
[22:58] sell an out-the-money call, an out-the-money put out-the-money put um around the the 20 Delta and Walmart violently as some of some of the other
[23:11] stocks. So, it's an easier one to kind of manage and I recommend it for those who can trade under fine risk or want to do a defined risk iron condor. Walmart is a really good example, a good practice stock as I as I as I like to
[23:24] call it. So, I picked up a dollar in credit. I've got a standard 20 Delta high implied volatility. All the usual trade entry mechanics. >> Before you go to next Why did you put on this trade in the first place?
[23:37] >> Mainly down to implied volatility was high. So, I like to use IV rank. So, IV rank is effectively it plots over the last 52 weeks the implied volatility of a stock and it takes the current implied volatility and
[23:53] ranks it within 0 and 100. So, the higher the better effectively. And I can't remember what it was at the time, but my criteria generally above 40. So, an IV rank above 40. So, and for a three-day trade, if I can especially
[24:07] with portfolio margin, the risk the capital required on a stock like Walmart is pretty much minimal. So, it's a decent annualized return as well from a capital efficiency point of view. So, high IV rank
[24:19] in relation to other stocks that we're going to talk about and and that the premium was was was still annualized return perspective. >> All right. So, let's get back to the
[24:32] trade. What happened? >> Unfortunately, as with those of you who it was a couple days later or a day later, you know, my put strike gets later, you know, my put strike gets breached. So, very similar to AMD where
[24:45] already have that call strike. So, again, what we trying to do here? If you think about what's happening is the first thing is reducing the Delta risk exposure. So, now I'm carrying a lot more of deltas. So, my delta on the
[25:01] put side is around 45 50 and on the call side is probably about five or six or something like that. So, you know, I'm still very long delta on this on this still very long delta on this on this position. What I decided to do was roll
[25:15] there's a theme with a lot of this stuff. I'm trying to be mechanical with these things is I've still got 2 days to go. I'm still confident that as long as I can stay outside of my break even zone, I can still close out this trade
[25:29] for a profit. So, I rolled down the call strike by $3, picked up a lot more short deltas, reduced that directional risk, and picked up not a lot of premium, but some premium 13 cents in the trade. >> But
[25:42] but by doing this, you're also narrowing the distance between the short call and the short put, right? So, in that way, you are kind of increasing risk if the if the suddenly the market probably jumps up again or not?
[25:56] >> Correct. Yeah, so there is a whipsaw which again with iron condors or environment to kind of be in. So, that is part of the parcel of that trading strategy. The question I generally get asked is why did I roll down to the 126
[26:11] strike, right? How do I select the 126? So, what I do is is I look at the implied volatility or the expected move for the 20th of March March expiration and what that volatility is. And I make sure at a minimum that my call break
[26:28] even strike current price of 127 13 is outside of the expected move for the 2-day expiration. Like I can't if if we move to the upside. I can't protect myself on that. Like, you know, I have
[26:43] to do something. But what I'm trying to do is hedge my bets here and not move it close enough, but move it far enough that as long as my call break even is outside of the expected move for the 20th March cycle. So, that's that's kind
[26:57] of what's in my thought process as I as I kind of place these these adjustments. Then what happened on the 19th? Obviously, it continues to go down And and then what what's happened here is
[27:11] Well, my break even put is being challenged. So, we're pretty much, you know, just a dollar a dollar above it. And the stock continued to fall. The break even's being challenged, long delta
[27:24] exposure, all of those all of those good things inside there. And what did I decide to do next? Again, what I decided to do is now roll down that call again, and I decided to roll down to the straddle
[27:39] position. So, a straddle isn't but where you put strike and call strike is at the same same strike price, same expiration. And again, going back to what we talked about in the last slide, I'm trying to find cuz I've only got a day to go,
[27:53] right? So, the implied volatility move to the upside isn't going to be that big. So, I'm trying to get my call break even just to be in and around or hopefully outside of the expected move if we were to get a pop up tomorrow in
[28:06] if we were to get a pop up tomorrow in this in the stock. So, I picked up going closer to the money is increasing my short deltas, picked up a decent amount of premium in relation to how much I've already got, and at the moment the stock
[28:19] price is outside of my break even. So, if Walmart tomorrow on the day of even, then I'm inside a good place on this Lo and behold, that on the day of expiration, it breaks
[28:34] through my my put put break even strike. So, when I looked at this trade, I could take a loss now of about a dollar 30. I think to close this trade out. When you
[28:47] take into account the credit, it's about a dollar 30 loser at the moment. Again, with zero DTT to go, I have to make an adjustment and move this out into a different expiration. So, what I decided to do
[28:59] So, what I decided to do is move it out to another week into a strangle. So, now I've got a $1, $1.20, $1.21 uh strangle position. Picked up an additional 35 cents credit. So, again, similar to AMD, these are all credit
[29:15] adjustment trades that I've done. Now, I've got $2 in the trade and again, So, as you can see here with my break evens, I'm basically following the stock with my break evens. And this
[29:29] sometimes is not as easy to do that when especially you get violent moves up or down, but this is just showing the example of how you can manage a position that again has gone against me. Now, we fast forward 4 days later
[29:44] and that was pretty much the low at the time. We basically got moved back into the strangle, which is absolutely fantastic. This is exactly what we want to happen. Uh however, my call strike has now been
[29:57] whipsaw environment, that's what we have over here. We now have a stock price of over here. We now have a stock price of 122 with the call sitting at 123. what do we do now? If I look at this position, I can close this out for a 20
[30:12] cent loss. So, if we look at where we were last the Friday before, were last the Friday before, I was at a $1.30 loss. Now, by making that additional roll in that adjustment, I've now brought that into a $20 loss or
[30:25] a 20 cent loss. So, I'll be happy with that. You know, that's not good. That's really good position, but I'm still confident I can close this out for a profit. What I decided to do with 3 days to go till
[30:37] expiration is that I decided to roll out again by is that I decided to roll out again by another week and roll to the at the money straddle. So, I'm going back to a 122 straddle
[30:50] in this case it's probably about 8 9 days to go till expiration and I picked up a $1.60 in credit. And you can see what that's done now to this position is it's given me really wide break evens with $3.60 in the trade. So, now
[31:06] even though I'm at a straddle, by collecting those credits, my break evens are like a wide out the money strangle and that's the way I kind of interpret though I've got a straddle position, I've actually got an out of the money
[31:20] strangle because I just need Walmart to stay in this range between 118 and 125 for me to profit in this trade. So, then we fast forward to the 1st of April and again after having a down move, it's
[31:36] now started to go back up. And my call strike is obviously now in money, but I'm still within my break evens, right? I've got 1 day to go till evens, right? I've got 1 day to go till expiration. I can close this out for 1
[31:50] cent profit minus 1 cent loss, so I'm pretty much a scratch. We've gone from a pretty much a scratch. We've gone from a $1.30 loss, a 20 cent loss to a scratch trade. I could take that, but what I decided to do
[32:02] roll up my put and now go to an inverted strangle. So, what an inverted strangle is is where your put strike is higher than
[32:14] effectively done is is I picked up another 40 odd cents in credit, got $4 in the trade. And you've got to remember yes you could put really really close to the money, but look where my break even is. My
[32:29] break even is now outside of the expected move for a 1 day move in Walmart that I I I've got no I've literally got a two standard deviation move for Walmart in one day to go from 124 all the way down
[32:43] to 120. That's a $4 move. >> When you invert a strangle, what does profit and loss? >> In a traditional sense, an inverted strangle the max that this spread can close for,
[32:57] the max that this spread can close for, right, is uh is a loss of $2. And that's right, is uh is a loss of $2. And that's assuming that the price is at one 20 123, right, which is right in the middle, right? So, the max is that you
[33:09] are locking in a loss of $2 here, right? If this if I had no premium in the trade or anything like that. So, I have to buy this back for a minimum of $2. However, you can see here I've collected $4 in premium. So, what that what that's
[33:24] done is even though I'm inverted I can still close this if Walmart stays exactly at 124.74 tomorrow in this example I will close this trade for a profit because even though I'm taking a debit
[33:37] inverted I have enough premium to buy it back and then and you'll have some left over to profit. Therefore, going inverted, straddle, out-the-money what I say is and we'll talk about it
[33:51] like to us like these key takeaways your strike price isn't irrelevant, but what's more important is how much premium you've collected and to the current stock price, especially when you're defending positions like we
[34:05] this is shown here. So, if we fast-forward till tomorrow, April 2nd, even though that the price of Walmart continued to go higher and I've got a $2 continued to go higher and I've got a $2 inversion, so in this $3.05
[34:20] I've got the $2 inversion that I have to pay and obviously my the additional cost cuz my call is in the money. I took a debit of 305 against my 399 I've collected in the trade. So again, I've made 94 cents in
[34:36] the trade. And again, go go going back to the AMD example, at trade entry, I picked up a dollar at trade entry looking to make 50 cents. Now, I've walked away now with the 94 cent profit from doing these adjustments for a
[34:50] And this is again why it takes a while for people to get understand this, that even though I've got an inverted position, I'm able to close out for a profit because of all the adjustments I've made
[35:04] along the way. Hopefully, that makes sense to yourself and the audience of how trying to be mechanical and rolling down untested sides and all these good things of how you can collect premium. We we've gone from out the money to a
[35:17] straddle to an inversion in 35 days and still walked away with a profit from this trade. >> A very good walk-through, Soheb. But, if I'm to be the devil's advocate, I might point out that, you know, these
[35:30] two trades you could have cherry-picked. Those were trades where you adjusted and came out with a profit in the end, but maybe you lost on many other similar attempts. So, let's
[35:43] as the third example, look at the trade that you are actually in right now. So, I thought it would be good to showcase an example trade that we're moment that you'll that you'll see in a second. But again, just to walk you
[35:57] this is on Microsoft. Microsoft, this is more of my traditional trades. I don't generally do like 4-5 day trades. I kind of do that other things. And this is my vanilla trade where I
[36:12] like to go 45 to 60 days out and generally sell a strangle at a 20 delta with high implied volatility. And so, in this example here, we've got a standard out the the strangle where we've got put strike of 335, 410 call
[36:29] expiring in the 15th of May. Picked up around $9 in credit. And again, looking to close out at 50% circa $4.50. as time goes on, yeah, about eight days later, you can
[36:44] see here that firstly, Microsoft is trading within my strangle, which is great, right? It's still both of my strikes are out the money. However, Microsoft is slowly rising and now my
[36:58] starting to increase. What does that mean? I opened this as a delta neutral trade at the beginning, which is zero delta 20 delta, minus 20 plus 20 zero delta.
[37:10] Now, as Microsoft moves up, my call delta is starting to increase, right? live in a second to see what these kind of deltas are kind of looking at. But, let's just say at this at this point in time, it is around probably 35 35
[37:26] deltas. Where this put probably has like a 10 delta now. So, therefore, I'm now directionally short 20 deltas. And this put, going back to what we
[37:38] for the 15th of May, the put strike and the put break even is both like a one and a half standard deviation move. So, the right answer here in my mechanical approach is to roll up the untested side, which in this
[37:55] case is the put side. So, I rolled up the put strike by $25 to the 360. Picked up an additional $3.42 in credit. So, now I've got just over $12 in the trade. And again, I have reduced my delta
[38:11] exposure on my directional risk to the upside. And obviously, I have propped up upside. And obviously, I have propped up my call break even slightly. So, as time goes on, three days later, as we all know in the market, what's
[38:25] these things happening in the geopolitical landscape, is the market started rallying. Microsoft was no exception. Made a 7% move in the day or during the time period. And not only was my call breached, but my call break even
[38:41] is pretty much what is is being challenged. So, again, my P&L is hurting me at the moment because I've got a lot of short delta because it's like I'm
[38:53] short stock at the moment of like 670 odd delta. This put delta is near enough four, five delta. Again, the expected move, my put break even and strike is
[39:05] out of the expected move. So, again, I need to make a decision on what to do. I could roll this position, right, into May, but there's still time left until
[39:17] the until the day of expiration. And I like to roll positions at 21 DTE, which like to roll positions at 21 DTE, which again, 21 DTE is on Friday, so it's on time to go cuz if we get a down move here, potentially, I can get out of this
[39:32] trade for a profit. So, what I decided to do is again, be be mechanical, roll up the put again, pick up another $4 in credit, another 1635 inside the trade, and again, reducing my short delta exposure and again, propping
[39:48] up that break even point to get myself out of the money. And again, for those who know what happens now, as of today of this recording or yesterday's market close, we again have another position here
[40:02] where our call strikes is still in the money, but getting further in the money, and our break even has also again been breached. So, again, same reasons, same mechanics, what I decide to do at this point is
[40:17] roll up the untested side. So, you know, you could probably ask you, "Well, what this is all starting to make sense in terms of my mechanical trading of how I do things is again, I've now gone to a $10 wide strangle,
[40:31] rolled up by $20, picked up another $3. So, I've got best part of $19 inside this trade. So, this is the live position that we have now. And if I was I'm >> we are recording this on on April 23rd,
[40:48] >> Yeah. Yeah. So, again, as of this morning before the market opens, if I wanted to buy back this position, buying back the buy back this position, buying back the 400 put and the 410 call,
[41:02] it will cost me a debit of $37. Now, again, I've got 1934 in the trade. So, therefore, my loss on this trade at this point in time is $17, right? So, again, let's look at it from a delta perspective of what's going on
[41:18] here. So, as I mentioned, my delta on this call, because I'm deep in the money, is sitting at 64. So, it's if I didn't have this put on, it would feel like I'm short 64 shares of Microsoft and it would it's bleeding
[41:31] my P&L. But because now I've rolled up to the But because now I've rolled up to the 400, I now have a $27 27 long deltas. So, the net net difference of those is probably about what's that? About 30
[41:44] something odd deltas that I'm now short. So, instead of feeling the pain of minus 64 deltas, I'm feeling the pain of minus 30-ish deltas. 30-ish deltas. So, that's the reason why I roll up the
[41:58] exposure. And I think I know what your next question is is what am I going to do here at this >> exactly the question I was going to ask. >> So,
[42:14] complicated is that Microsoft has earnings on April the 29th, right? And 21 DTE is in 2 days time on the on the 24th, or tomorrow, sorry, on the on the on the 24th. So, I like to roll at 21 DTE, but in
[42:30] this example, because earnings is only like a few days after, what I'm planning on doing is rolling this position out into June. uh the day of earnings. So, close earnings will be after the bell, so, you
[42:45] know, just before market close, I'll make my adjustment roll. talked about earlier sitting at 90. This is a very, very volatile stock currently for this position. I need that volatility to push my strikes.
[43:00] Now, in terms of what I'm thinking of doing in terms of strike selection. So, let's just say uh this the day of earnings, and where it is now and what the current situation is.
[43:13] So, I would buy back my two options there for the $30 of debit. I would look to roll out to the next monthly, which would be June 18th. And you can see here what I'm looking to do is move it to an baby
[43:28] do is move it to an baby uh $15 wide out-the-money strangle. And what that's going to do, that's going to give me 93 cents of credit, right? So, if I add that 93 cents to the $19 that I've already got in the trade,
[43:41] $19 that I've already got in the trade, that brings my new total to $20.27. And this would be a 405 would be my new put break even, and 460 would be my new call break even. Now, in tastytrade, this copper bar here basically shows you
[43:56] the implied volatility move. I didn't scroll down far enough on the call side, but you can see my break evens are within the expected move, which isn't position that's gone completely against
[44:10] me. So, if I go back two slides, I'm moving to this position here where my deep in the money call is now moving to an out the money call, reducing my
[44:22] delta exposure. So, now my delta exposure is -48 +42. So, now I've got a -6 delta a strangle on, which is basically delta
[44:34] I've gone for something where I directional risk of was it -30 deltas to directional risk of was it -30 deltas to now -6 deltas and put this position out of the money. Now, whether you go up one strike or down one strike, you know,
[44:48] that's down to personal interpretation, but if I didn't have a bias on whether I think Microsoft's going to go up or down in the next like 20-30 days, this would be the right move to do to keep the good fight going, get the strangle out of the
[45:02] money and widen out those break evens. Cuz now I've got a instead of having a call break even at 429, I've now got a call break even around the 460 mark. So, that's how I recover trades, and that is a live thought process of my thinking of
[45:16] plan to get this trade out of trouble. And how this will turn out, we do not know yet at the time of recording, but that's what's always exciting about uh trading options uh in any case, isn't it?
[45:30] >> Definitely. >> So, we recorded this on April 23rd, but we are publishing the video uh on May 10th. What has happened in between? 10th. What has happened in between? Today is Friday, May 8th. Let's bring
[45:44] Soheb back in and check on the trade before we publish the final video interview. Hello, Soheb. Welcome back. an update on this trade. >> I'm curious. What happened to this since
[45:57] >> I'm curious. What happened to this since our last recording? Where Where are you with this trade right now? >> So thankfully the trade is profitable. just to walk you guys through where we're at. So
[46:10] as I mentioned in the last video or earlier in the recording is that I'm waiting until the day of earning. So the day of earnings was April the 29th. You can see here that the price was flirting with my call break even. So what I
[46:22] decided to do was roll this position out from the May cycle into the June cycle to the 425 strike. And I picked up an additional $12.59
[46:34] in credit. So I've got just under $32 in the trade. And I'm hoping that Microsoft stays within the expected move. So if we fast forward to the close yesterday on May the 7th, we did get a slight down move on earnings, but it's kind of
[46:48] picked itself back up where I'm pretty much the price is at my straddle price. So you can see that the current price is within our break even zone. closed the position back when we did the recording earlier, it was a $17 loss.
[47:04] And you can see here now to close this straddle position, it's going to cost $31. I've got $31.93 in the in the trade, therefore giving me an actual trade, therefore giving me an actual profit of $0.83 if I was to close today.
[47:17] Now if we just quickly look at where my break evens are compared to the expected move for the June cycle, we can see that we are pretty much at the expected move. position, my position is actually an out-the-money strangle at the expected
[47:30] out-the-money strangle at the expected move. So my plan now is is let Let it do its work. Let another $4 to $5 come out of this trade so I can close this trade for a $25 to $26 debit and take take the money and move on. But
[47:45] the stock complying, you know, we can turn the current loser of $17 into an $0.83 profitable win. >> Great. You are doing well with this trade. Thank you. And we'll get back to the previous recording.
[48:00] the previous recording. Let's start to sum up. What would be if you're going to give us a few concrete tips about how to approach trades that are going against you, what what to do? What
[48:14] >> I can look at this into kind of three ways, right? So, hopefully what I'm going to say now is I'm just repeating what I'm saying because this is what's true to me and has made me a successful trader.
[48:29] management. So, in my view, delta management drives your outcomes. Like our edge, especially when we sell short premium, isn't really in predicting whether a stock's going to go up or down. It's about managing the delta. And
[48:45] down. It's about managing the delta. And again, delta measures the exposed how exposed you are for on a given price movement. And when a trade goes against what your job is is to reduce directional risk. So, when
[49:00] I roll up or down the untested side, when I talk about I'm adding more short deltas or I'm adding more long deltas, I'm reducing that overall risk and trying to flatten out my deltas. And a good
[49:12] a good uh rule of thumb is is when you're adjusting a trade is trying to reduce your delta exposure by 20-30% because you can't get it back to zero unless you roll out in time and things like that. But, a good rule of thumb is
[49:26] if you if you're challenged on the call side, for example, when you roll up the put, try to flatten out the deltas by by 20 or 30. So, how do we reduce deltas? one of the ways to do it is example the Microsoft trade, which I'm looking to do
[49:39] Microsoft trade, which I'm looking to do at the moment, is roll out in time. So, again, buying back the May cycles, uh selling the June cycle, and improving your strikes. If I improve my strikes, it's going to I my overall delta.
[49:52] The next one is similar to my AMD trade. If I've got a uh uh put spread or a put on there, is open the other side. Open the call side, which again is going to add short deltas in this example, again reducing that
[50:06] overall delta risk. And if you've got a strangle or an iron tested, roll down the untested side or roll up the untested side, depending on which side's being challenged, and pick up
[50:20] additional delta to flatten out that delta risk. So, if that is the main thing in my view, is reducing out those deltas. The second thing is is adjust for credits, right? Each adjustment or 99% of your
[50:34] adjustments should be paying you a credit. And what those credits do is increase and widen your break-even to give the trade or the price more room for you to for to to recover. As you saw in the examples, those break-even side
[50:48] to widen as time went on as I collected credits, which helps me or moves that go range. At the beginning, those your break-even's going to be small, but the on how you roll, that's there. You do need the the the
[51:04] stock to help you sometimes either come back in your favor or stay flat for this to work really effectively. And the last one is stay mechanical, don't be emotional. Each of those trades, even though they
[51:17] were different trades, different tickers, the mechanics of defending were exactly the same, right? I didn't deviate away from the mechanics of what I of what I like to do. So, yes, your P&L is going to hurt. My
[51:30] moment, but don't follow the P&L, follow the process. And this comes with practice and the emotional of seeing like four-figure down days and things like that or relation to your account size,
[51:45] years and I've helped a lot of people get to the positions on be better at defending positions. So, yeah, those are the kind of three things. Delta management, stay mechanical, and adjust for credits when you can. They're
[51:58] They're the kind of main things and like it to sum it all up that losing trades can be repaired and hopefully I've given your audience some good examples and some tips there to help them to get to get to a better place.
[52:12] >> What would be good sources to learn more about this? >> In terms of this, so the Well, firstly, you can follow me on YouTube. One glance trader. I do most of my channel content now is kind of shifted
[52:26] got a community where I go through this in a lot more detail. So, that'd be a good one. The second one will be tasty. So, if you Google tasty trade, they are short premium sellers. All the mechanics that I've gone through today is all part
[52:40] of the tasty trade. So, I think it's Jim and his whiteboard, for example, has got a massive series uh series on that. Goes through how to defend positions that go against you. And in particular, I think it's called
[52:53] from Nick Nick from tasty trade. If you Google tasty trade anatomy of a trade, he goes through a lot of examples of where similar to what I've just gone through with you of how he's turned losing positions into profitable ones.
[53:07] would be would be good resources to learn from. >> And we do also have another interview with Soheb on this channel where he
[53:19] with Soheb on this channel where he explains his 111 strategy and how he has been successful with that one. The link should be on the screen right now. Soheb, thank you very much for sharing how you turn your losing trades into
[53:32] >> No problem. Appreciate you, John. Thanks >> No problem. Appreciate you, John. Thanks for having me back on.