Velocity of Capital Options Strategy — Full Breakdown & Transcript

[00:00] So the reason why a lot of you traders fail in your options trading is because you don't know when to correctly get into a trade and just as importantly when to exit a trade. You're leaving a huge amount of money on the table because you haven't been trained on how to maximize your profits on your options trades.

[00:18] Trading psychology and risk management is not going to save you. You need to know when to correctly get into an options trade and when to take your profits or you'll just continue to fail or at best have weak, mediocre results.

[00:32] It's as simple as that. If you get into a trade too early or you get into a trade too late, both of these scenarios will cause your options trading to fail. And so the purpose of today's video is to cure that problem once and for all.

[00:45] What we're going to be teaching you in today's video is so easy and such low-hanging fruit that it's going to immediately improve your returns with one simple tweak. So let's get into it. Hi, I'm Seth Freiberg, and I'm the head trader of SMB Capital's Options Trading Desk here in Manhattan.

[01:19] and there's a basic mistake that a lot of options traders make that caused them to leave massive amounts of money on the table and so I want to jump into an illustration of exactly how this mistake is made

[01:32] and the simple tweak you need to implement to substantially improve your trading results. Now, before we get into the options trading technique that we'll be teaching you in today's video, if you're absolutely brand new to options trading and you don't know much about how options work,

[01:48] we've put together a video for you to understand options basics. And if you click on the video appearing on your screen right now, it will lay the groundwork for you to understand the options strategy we'll be sharing with you in this video.

[02:00] Then, when you're finished, you can come back and watch the rest of this video. To show you how this works, let's take a look at a chart of the Qs, the ETF that represents the tech-heavy NASDAQ 100 index on November 21, 2025.

[02:15] And as you can see, we've overlaid Bollinger Bands on this chart. And as you probably know, when a stock is touching the lower Bollinger Bands, most traders consider that to be a bullish signal.

[02:28] And so as you can see on that day, the Q's price, which was 588.10 on the open, was sitting right on that lower Bollinger Band. And so let's say that we decide to implement a bullish options trade that day.

[02:42] Now, one of those popular option strategies to trade a bullish signal is known as the put credit spread. And so let's say on that day we pulled up an options chain of the Q's expiring on December 4th, 13 days later,

[02:55] and we look down at the put side of the chart. As you can see the put with a straight price right at the market price the 588 put was selling for And so we went ahead and sold 10 of those And then we headed down five points lower to the strike which was selling for and we went ahead and bought 10 of those Well

[03:18] when you do that, selling a put higher up on an options chain and buying another put lower down on that same options chain, when you do that, you're entering into what options traders refer to as a put credit spread. And so in this case, we sold a 588, 583 put credit spread expiring on

[03:37] December 4th. Let's take a look at the cash flow implications of what we've just done, because that's the best way for you to understand how this trade works. You see, we sold those 588 puts at a price of $1,267. But remember, put options represent 100 shares of stock. And so

[03:55] you multiply that price by 100, and we sold 10 of them. So when you multiply it all together, the total cash inflow from selling those 588 puts was 12,670. But then we spent most of that by

[04:09] purchasing 10 of those 583 puts, which as you can see, using the same kind of calculation, cost us 10,670. And so netting it all down, you end up with $1,910 of positive cash flow

[04:24] for which your broker will be asking you to have at least $3,090 in your account at entry, which is also the trade's worst-case scenario loss. Let's move forward to the end of the day, four days later on November 25th.

[04:39] And as you can see, at the end of that day, the queues had closed at $608.89, right in the middle of the two Bollinger Bands that afternoon. So the stock was rallying, but it had certainly not become what anyone would consider to be

[04:53] overbought at that point. We're still in a bullish mode. So let's take a look at where we are on our options trade at this point, right at the close on November 25th. And as you can see, the price

[05:05] of the 588 puts that we sold have now dropped to $1.64, way down, and the price of the 583 puts that we own have dropped to $1.20. Now, I'd like you to think about something at this point.

[05:19] This trade expires in nine days on December 4th. Today's November 25th. If the cubes keep rallying, and by December 4th they remain well above 588, then both of those puts are going to expire worthless,

[05:33] because puts only have value if they confer upon you the right to sell shares at a better price than they're trading for in the market. No one's going to sell their shares at below market, and so if the cubes remain well above 588,

[05:47] Both of those options are going to expire worthless. And that original $1,910 that you received, well, you're just going to keep those as your profit. That cash becomes your profit.

[06:00] But let's think about another path that we could take. And that is, what if we close the trade right now and started a new one immediately? A new one that expires on that same day but has moved up so that it reflects the current price of the Q not the price that it was at four days earlier when we first put the trade on So let play this out

[06:24] And so the first step is to close the existing trade. So let's look at the math of how that would work. The way that you close an options trade is to simply reverse the original transaction,

[06:37] buying back the puts you sold and selling the puts you bought. So let's start out by remembering that we collected $1,910 at the outset of the trade. Then you buy back the puts you sold, and you sell the puts you bought.

[06:51] So in this case, we buy back the 588 puts for $1.64, so that would cost us $1,640. But we also cash in the 583 puts at $1.20, so we receive in $1,200 for those.

[07:06] So when you net it all down, we end up with a profit of $1,470 on the trade. Now think about it. If we had waited nine more days and the Q stayed above $5.88 during that period of time,

[07:20] we would have collected the full $1,910. But if we close it now, only four days in, we collect $1,470. Well, that's 76% of the profit we would have made by waiting nine more days.

[07:36] That's a pretty good chunk of change for four days. But we're not done yet, because the second step in this process is to sell a new put credit spread expiring on the same day as the old one would have, which is December 4th.

[07:51] But this time, we're going to locate the put credit spread at the current price of the Q's, not at the price it was at four days ago, from which it has bounced. And so with the Q's now trading 10 points higher at 608.89, the trader selects that same options chain to December 4th.

[08:09] That doesn't change, but he simply moves up the options chain to 608 and sells 10 of those 608 put options at a price of 609, buying 10 of the 603 options five points lower at a price of 441.

[08:26] And when we calculate the fresh tax flow that we're receiving from this new spread, you can see, using that same kind of calculations we used before, that in this case, we collect $1,680, a little bit less than we did before, because we're now four days closer to expiration than we were when we first entered the original trade.

[08:48] So there's less time left. The spread is going to yield a lower premium. So let's now move forward to the day that this second trade expires, which, of course, is December 4th, the same day the old one would have expired.

[09:01] And as you can see, the Qs did continue to rally. And on the day this trade expired, they closed at 622.94. And so when we look at the outcome of this second trade, it's pretty straightforward,

[09:14] because obviously both of the puts expired worthless as the Qs expired at 622.94, and the puts were located at 608 and 603 way below where the stock closed that day And so given that there no value to puts expiring below where the stock trading both options have zero value at the end of the trade

[09:36] meaning you get to just simply pocket the entirety of that $1,680 in cash flow that we received when we first sold that second put spread. And so think about it.

[09:48] Let's consider the two outcomes on December 4th. On the one hand, had we simply let the original trade expire, the outcome would have been fine. We would have made a profit of 1910 over the 13-day period of the trade.

[10:01] But by closing the trade early, when it had attained more than 76% of the maximum profit possible on the trade that 1910, we got 76% of it in four days.

[10:15] And so we've already earned a lot of the profit from that first spread. So if we turn right around and enter a new trade expiring on the same day, if our thesis is correct and the stock continues to rally until it hits the top of the Bollinger Band,

[10:32] then we can vastly increase our profit potentially on the trade by reusing our capital a second time during the course of the trade. This concept is called the velocity of capital, and it's very useful to greatly improve your

[10:48] returns as an options trader. And so what I'd like you to take away from today's video is that professional options traders are always on the lookout for opportunities to improve their velocity of capital by closing

[11:00] trades early when they've attained a substantial portion of their maximum profit, which in the case of credit spreads is the amount of cash that you first receive in hopes that both options will expire worthless. If your profit is capped out at that original cash flow,

[11:16] and your profit level mid-trade is already a substantial portion of that maximum profit, then it makes all the sense in the world, in most cases, to close the trade and re-establish a new

[11:28] one. And you can see from this example just how powerful that practice is. These are the kinds of tactics used by professional options traders, which is why they can squeeze much more in the

[11:40] of profits out of the market. Now, if you'd like to learn three more option strategies that our pro traders use, including the unique options trick that allows you to make money while you

[11:52] wait to buy stocks or ETFs at the price you want, and the options income strategy that allows you to make consistent money, whether the market goes up or down or sideways, and how to make money on

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[12:35] you