Earn $74 in 3 Weeks with This Neutral Strategy
60sConcrete profit example with a step-by-step walkthrough makes viewers believe they can replicate the results.
▶ Play ClipAI Summary
This video explains the short strangle strategy, a neutral options trading approach that profits when a stock's price remains stable. The presenter demonstrates how to combine covered calls with put sales using Ford as an example, detailing the process of selling puts to acquire shares and then selling calls against them to generate premium income.
Chapters
[00:16]
Introduction to Neutral Strategies
The video introduces neutral strategies, specifically the short strangle, which is based on a covered call with an added put sale. Other strategies like Iron Butterfly and Iron Condor are mentioned as variations with added complexity.
[01:29]
Starting the Strategy with Ford
Using Ford as an example, with a stock price of $10.59, the presenter suggests needing about $2,100 to start. The first step is selling two put contracts: one at $10.50 and one at $10.00, both expiring in a week, collecting a total premium of $29.
[02:10]
Assignment Scenario
If the price closes at $10.30 after a week, the put at $10.50 is assigned, resulting in the purchase of 100 shares at $10.50. The put at $10.00 expires worthless, so only 100 shares are acquired.
[02:57]
Executing the Short Strangle
With 100 shares, the next step is to sell a call at $10.50 and a put at $10.00, collecting premiums of $10 and $21 respectively. If the price stays at $10.30, the ideal outcome, the premiums are kept and the process repeats.
[04:08]
Handling Price Drops
If the price falls to $9.80, the put at $10.00 is assigned, resulting in 200 shares. The premiums collected over three weeks provide $124 in cash, whereas buying 200 shares outright would leave zero liquidity.
[05:08]
Adjusting for 200 Shares
With 200 shares, the strategy adjusts to selling two call contracts: one at $10.00 (the strike of the assigned put) and one at $10.50 (the strike of the first put). The process continues based on share count and liquidity.
[05:37]
Handling Price Rises
If the price rises to $10.60, the call at $10.50 is assigned, resulting in zero shares but $2,174 in cash (including premiums). This returns to the initial state with extra cash, and the strategy repeats.
[06:19]
Reinvesting Premiums
The presenter personally reinvests premiums by buying more shares of the same company. For example, $12 in premiums buys one share, $31 buys three shares. Over a year, this could accumulate about 100 shares from premiums alone.
[07:18]
Mitigating Upside Risk
Buying shares with premiums helps mitigate the risk of missing out on sudden price increases, since the shares bought with premiums are not tied to call sales and can benefit from price appreciation.
[08:29]
Avoiding Withdrawals
The presenter advises against withdrawing premiums for living expenses early on, as reinvesting them compounds returns. Over time, the strategy can generate enough income to live on, but only a portion should be withdrawn.
[09:37]
Ideal Market Conditions
The strategy works best with companies that have a stable average price and gradually rise, reducing the risk of assignment and benefiting from both premiums and price appreciation.
The short strangle strategy is a powerful way to generate income in a flat market by selling options and reinvesting premiums to compound returns. It requires careful management of assignments and is best suited for stable, gradually rising stocks.
Mentioned in this Video
Tutorial Checklist
2
01:42
Sell two put contracts: one at $10.50 and one at $10.00, both expiring in a week, to collect premium.
3
02:10
If the price closes below $10.50, you'll be assigned 100 shares at $10.50; if below $10.00, you'll be assigned another 100 shares.
5
04:08
If the price falls and you get assigned more shares, adjust by selling more calls (e.g., two calls for 200 shares).
6
05:37
If the price rises and your shares are called away, you'll have cash and can restart the process.
Study Flashcards (6)
What is the short strangle strategy?
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What is the short strangle strategy?
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A neutral options strategy that involves selling a call and a put on the same underlying stock, typically when the stock is expected to stay within a range.
00:16
What is the initial capital needed for the Ford example?
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What is the initial capital needed for the Ford example?
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About $2,100.
01:29
What happens if the stock price falls below the put strike?
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What happens if the stock price falls below the put strike?
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You are assigned the shares and must buy them at the strike price.
02:10
How does the strategy adjust when you have 200 shares?
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How does the strategy adjust when you have 200 shares?
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You sell two call contracts instead of one.
05:08
What is the benefit of reinvesting premiums in the same stock?
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What is the benefit of reinvesting premiums in the same stock?
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It helps mitigate the risk of missing out on price increases and compounds returns over time.
07:18
What type of stocks are ideal for this strategy?
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What type of stocks are ideal for this strategy?
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Stocks with a stable average price that gradually rise.
09:37
💡 Key Takeaways
🔧
Short Strangle Defined
Clearly defines the strategy as a covered call plus a put sale, setting the foundation for the tutorial.
00:16
📊
Assignment Mechanics
Explains the practical outcome of price falling below strike, showing how shares are acquired.
02:10
💡
Premium Reinvestment
Highlights a key compounding technique that enhances long-term returns.
06:19
⚖️
Mitigating Upside Risk
Shows how buying shares with premiums offsets the capped upside of covered calls.
07:18
💡
Ideal Market Conditions
Provides actionable guidance on when to use the strategy for best results.
09:37Full Transcript
[00:02] use most often with financial options. Of course, I'll explain what this neutral strategy is, all the possible scenarios, and which stocks or market moments are best used with it. What are
[00:16] neutral strategies? The neutral strategy I'm going to explain is based on the cover, but we're also going to add a layer of difficulty by adding a put sale.
[00:29] There are many types of neutral strategies, but in this video I'm going to show you the one I use, which is called short strangle, since the rest of the ones you just saw, like Iron Butterfly or Iron Condor, are
[00:43] basically the same, but with added layers of difficulty. And in this free course, for now, I'm teaching you the basics, although also very profitable ones. You know that if you want to become an expert, you can take
[00:58] a look at the advanced course. As I mentioned, I'm going to base it on a cover mentioned, I'm going to base it on a cover call, that is, selling calls already having 100 shares of the company and at the same time adding some put sales.
[01:13] So if you haven't seen both videos I just showed you, you should, although you can stay here and revisit them later. That said , there are several ways to start, and as always I'm going to use the example
[01:29] of Fords, which starts with a price of 10.59, so to start this strategy and do it safely, we'll need about $2,100. The first way to start, and the one I
[01:42] The first way to start, and the one I personally do, is by selling two put contracts. If the price is at 10.59, 10.59, I will sell one put at 1050 and another at 10 for
[01:54] a week from now, so we will receive a total premium of $2. we will receive a total premium of $2. $9 for the first put sale at 1050 and for the second put sale at 10, since it is further from the current price. And to make
[02:10] the example perfect and get to what interests us, let's say that after a week the price closes at 1030. In this way, we will be assigned the 10 shares of the put option that was at 1050, since the price has
[02:27] finished below 1050, for which the broker will take $1.05 from what we already had. But of course we do n't have to buy the put option with a strike price of 10
[02:40] because the price ended at 1030, so the price didn't fall below that price and we won't buy those 100 shares. Therefore, we now have 1000 shares that we bought for the first put option at 10.06.
[02:57] Now the next step and what is considered a short strangle. is considered a short strangle. We have 100 shares and we sell a col We have 100 shares and we sell a col strike price of 1050. For this we receive a
[03:10] premium of $10 and in turn what we are going to do is sell a put at a strike price of $10 so we will also receive a premium of $21. And in this case, the price
[03:22] will end the week the same as it started at 1030, which is perfect for us. Let's say that's the ideal case and what we're looking for. In a neutral strategy, what we want is for the price to be
[03:37] neutral. I still have my 100 shares to sell calls and I also still have my money to be able to sell puts, but apart from that I have received a very nice $1. And what would the next step be ? Well, obviously, repeat
[03:54] exactly the same thing for the following week. We'll use the same strikes again and assume that the premiums are more or less the same. It doesn't have to be that way, but just to simplify things. If the
[04:08] price remains the same, we will repeat the same process. But if the price falls to 9.8, then what will happen is that we will be allocated 100 shares for the
[04:21] put option we sold that had a strike price of 10. In this case, we will now have 200 shares, and thanks to the premiums and having bought them cheaper, we will have 124 in cash. Keep in mind that if we had bought these
[04:37] had bought these 200 shares directly from the start, yes, we would now have 200 shares but 0 liquidity. In this case, thanks to the premiums we have collected over 3 weeks, we have 200 shares, but
[04:52] also $1 in cash. And in this case, since we now have 200 shares because they have been allocated to us, what we would have to do for the following week is sell two call contracts. The first
[05:08] call contract would be made with a strike price of 10, which is the price at which we bought the second call put with a strike price of 1050, which is the price at which we bought the first [cough] put. And from there
[05:22] continue with the same procedure. If I have 100 shares and liquidity, what I will do is sell a call and sell a put. If I have 200 shares, what I will do is put. If I have 200 shares, what I will do is sell two calls. And if I have all the
[05:37] cash I need, what I'll do is sell two puts. If the opposite occurs and the price rises to 10.6, then we will be allocated the 100 shares for the sale of Col, since it has risen above the strike price of 1050. In this case, we will have
[05:54] zero shares, but thanks to the premiums of 2174 in CAS. We are in the same situation as 3 weeks ago, but now with an extra $74
[06:07] . And from here, it would simply be repeating from step one. A lot of money and a lot of graphics, but I think it's pretty clear. My approach,
[06:19] and what I personally do, is to buy shares of the same company with which I am using this strategy as I receive the premiums. For example, if I received $12 in the first week, that will be enough to buy one
[06:34] share of Ford. In the second week I received $31, therefore, I will be able to buy approximately three shares of Ford. And so on. Every time I receive bonuses, I buy shares. If everything goes reasonably well using this
[06:50] strategy of selling calls and selling puts, after a year we should have been able to buy about 100 shares of Ford with the premiums, which sounds pretty
[07:02] good, since that money comes solely and exclusively from the premiums we are receiving, which you wouldn't receive if you had just bought and waited. And in turn, what I do by repurchasing shares with the premiums I
[07:18] receive also helps us to mitigate one of the problems that the cover can have . Remember that if the price suddenly rose significantly, we would not the price suddenly rose significantly, we would not benefit from that abrupt increase
[07:32] because we had already committed to selling them at a certain price. Well, if what we're doing is buying shares with our bonuses, when this abrupt rise occurs, we won't benefit from this rise
[07:48] with the 100 shares I'm using to sell Col, but we will benefit with using to sell Col, but we will benefit with the 10, 30, 50, 70 shares I've been buying with the bonuses, since those don't involve any Col sales. Although, as I
[08:02] personally do. Perhaps you want to use Perhaps you want to use these premiums to buy gold or shares of another company, which is obviously also fine, but I
[08:15] like to buy from the same company, so as I just said, if there is a sudden rise, I will benefit, not with 100% of my shares, but with those I have bought thanks to the premiums. And what I don't recommend, at least
[08:29] at the beginning, is withdrawing all these bonuses to use them for living expenses. As I bonuses to use them for living expenses. As I said, at least not at the beginning, since all these premiums and purchases of new shares will help us to
[08:43] compound interest and be earning much more in a few years. Each year we will have more actions. By having more shares, we will earn more premiums each year and therefore earn more money each year.
[08:57] Compound interest. And in this way, in a few years we will be able to withdraw a receiving and it will be enough to live on, but only a portion and not by withdrawing
[09:10] 100%. Let's see what type of companies or market moments are of interest to us when implementing this strategy. You already know that you can watch a completely free course on YouTube , but if you like it and want to learn much more,
[09:24] becoming an expert in financial options, I recommend you check out the advanced course where you will learn much more and join the community of smart investors. And basically it's with the
[09:37] companies that I already mentioned in the video about the wheel strategy or the cover strategy. This strategy will be especially interesting with companies that have a fairly stable average price and simply go up and
[09:53] fairly stable average price and simply go up and down relative to that average price. This strategy will be especially interesting with companies or market moments that have a stable price, but at the same time are gradually and
[10:07] smoothly rising. This significantly reduces the risk of allocation or of having our shares sold, and at the same time we will benefit not only
[10:19] from the premiums, but also from the price increase in the market. If advanced course, you can click here. If you want to see the free course, you can click here.
