All right, so today I want to share
with you how I generate trading
ideas and how I then take these
trading ideas and go from idea
to trading strategy.
So let's get started.
Whenever I develop
a new trading strategy, or I'm
thinking about a trading strategy,
for me, it is a four-step
approach that I'm using here.
First, I come up with an idea.
I come up with a trading idea where
I said, "You know what?
This might actually work."
Then, of course, I have
to test this idea
and see is this idea making
sense at all?
And I'm going to show you exactly
how I test a trading
idea. Step number three, this
is where now I need to have
the exact rules.
So once I come up with a rough
idea, I start
trading it with a really, really
small size.
So usually just a few
shares or here what I'm working
on right now is another option
trading strategy, and actually,
you inspired me
to this strategy.
So this is what I want to share with
you today that I'm working on.
Anyhow, at some point, the
idea I like to put it into
very clear cut rules
so that I know exactly
what to do so that this actually
turns really from an idea
into a strategy.
And then step number four,
I like to develop tools
around this because tools
make my life as a trader
easier. Now, you already know that I
have several tools, for example, for
the selling put options
class, or this strategy,
that's where I have my Put Options
Calculator, for the PowerX
Strategy I have the PowerX
Optimizer, so tools make
it easier for me to help me
making trading decisions.
All right. So now let's talk
about the trading idea
that I have and I'm jumping back
here. As you know, recently
I have been doing really, really
well selling put
options. This is where in five
weeks I was able to grow a small
account, $25,000 account,
by 43%.
So it grew into
$36,000.
I had 16 or
17 winning trades in a row.
Right now, I might have a losing
trade, we'll see how this ends.
Anyhow, completely different
subject. So I kind of
started to like the idea
of selling options.
Now, when selling options
as we know, what we need is
we need to have volatility.
The volatility needs to be high.
Why? When volatility is
high this is when we can get
a lot of premium in options.
So as I'm recording it, we are still
in crazy market conditions.
The VIX has been high, but right
now the VIX is coming down.
So this is where I was wondering,
okay, where else do
we have high volatility?
And here's what came to mind.
This is where I thought volatility
is usually high for
stocks around earnings,
right? Because as you know, when a
stock is ready to announce earnings,
there's some uncertainty.
And uncertainty always
leads to higher volatility.
So I thought, "Ah, that might
actually be a good idea!"
And then I thought, recently I did
really do well with selling
puts. So how about
that around earnings when volatility
is high we do not
only sell puts, but
we sell calls
and puts?
And I know that many of you have
been asking me around this and have
said, "OK.
Can we also sell calls?" Because
you have been enjoying watching me
or maybe doing it yourself selling
put so, this was the question
here. And I thought, yeah, you know
what? We could do this.
Actually, when you sell calls and
puts on the same stock,
this is what we are calling trading
strangle, okay?
So this is the idea
that I'm trading strangles
around earnings.
Why? Let's just continue
this trading idea that you have a
little bit of a background and then
we jump onto my trading platform and
I show you what I've already been
doing and what I'm planning to
do going forward.
How I go from, as we see
here, idea to test
to rules that we have a really
specific strategy and
then how I develop the tools.
Let's go back to the trading idea.
Let's say it is selling
strangles, so selling calls
and puts around
earnings. So the idea is
that before a company announces
earnings, uncertainty
is high.
And since uncertainty is high,
volatility is high.
And then right after earnings,
right after earnings, we should
see a volatility
crash because now people
know what a company
came out with.
And sometimes there's a reaction
to it, but more often than not
there's not a reaction to it and I
will show you how I found this out.
I was surprised.
So often there is
no major
reaction after earnings.
So we want to take advantage
of that.
So this is the idea and this where I
thought, okay, who is actually
buying options right
before earnings?
Well, this would be often
institutions who want to
hedge, who want to make sure
that they are not getting caught on
the wrong side of earnings.
Okay. So let me ask you, thus far,
just the general idea,
is this making sense?
If this is making sense thus far, do
me a favor and give me a quick
thumbs up so that I know that you're
still with me, because I know that
I'm going fairly quickly here.
This is why I'll probably do more
than one video.
I don't want to stretch this out.
I could probably talk about the same
topic here for two hours, but
I want to make sure that I'm going
also at a fast pace.
So if I'm going at the right pace,
do me a favor, click the like button
really quick if this general
idea that I have here thus
far is making sense.
And then we go into how
I'm testing the idea.
Because again, step number one is
having an idea. And this is my crazy
idea because I love selling
options when the volatility is
high. So I believe that this might
be a good idea and maybe it is not.
We're going to find this out
together. What do you say about
this? We do this together.
I want to show you exactly how I do
it. So step number 2 now
we need to go to testing.
So what I'm doing right now is I'm
sharing my trading account
because this week
there were three companies
that reported earnings, Starbucks,
UPS and Caterpillar.
I actually sold a strangle,
just one, I told you.
When testing, I'm going with a super
small, the smallest contract size
ever. But I don't think
that you can really do a whole lot
of testing on the computer, so
especially with options, super,
super difficult to back test
options.
This is why I put on a few trades.
And as you can see right now on
these three trades, I'm up
$185.
I put these trades on, on Monday.
Today as I'm recording it's
Wednesday. So in only three days, I
made $185.
Now you might say, "That's nothing."
But you see, this is the margin
that I needed for this, the
money that I needed was
$5,400. So if you do the
math, that is 3%
in three days, that's 1%
a day. If I could keep that up,
making 1% a day, that would
be more than 200% in a year.
So you would more than double your
account in a year.
I like that idea.
Let me actually show you exactly
what I'm doing, what my idea is.
Again, today we're just going in
broad strokes so that you get the
general idea.
And then probably in the next video
we gonna refine that idea.
So I want to actually
pick a few stocks that are
reporting earnings in the next
few days.
So one of the stocks that is
reporting earnings in the next few
days is United Airlines.
So United Airlines, as you can see,
oh, my gosh, they are reporting
earnings tomorrow.
So I believe that today
there's some pretty high volatility
and that this volatility
gets sucked out of it tomorrow.
So let's take a look at
United Airlines.
And here's what I'm looking for.
I'm opening up my option
window, and the deal is
I don't want to be in this trade
for long. So since they're reporting
earnings tomorrow, I'm actually
fine choosing expiration
where we expire in only two days
from now.
Now, by the way, keep in mind that
right now I'm just showing you the
idea. I don't have the specific
rules yet, but here's my
idea.
It is right now
trading at $31.
So the idea is that I'm selling
deep out of the money puts
and calls.
So here, for example, with
a Delta of
0.67.
So that's a 90% probability
of success, can actually go to
27, that's more than a
10%-15% move.
Let's try this, let's just see
if it could get enough premium here.
I would try to sell this
one. And again, right now, I
don't have the exact rules yet.
I don't have the exact rules, but I
will at some point after
I'm testing that the idea is valid,
I have the idea, I have the rules.
So and I want to sell a call
above current strike price.
And I'm looking here for a Delta of,
that actually might make sense, so
maybe 37.
Let's see, what do we have here?
Maybe this one, 36 does
look good.
So let's do this.
No, I actually wanted to go to a
strategy build on.
Let me do this one more time.
And again, as you can see, you're
just really you're right now looking
over my shoulder.
So as you can see, this is not
scripted, but I'm showing you
exactly what I would be looking at.
So I would sell this one,
36 probably.
And then also looking here
at the Delta, maybe selling
a 30, 27. OK.
Let's just see.
So the 36 and the
27. Let's just go back
to this here and let's
mark this on the chart and
talk about where exactly
would this be. So we talked about 36
right here and 27.
The idea here is that
if United is reporting earnings
tomorrow, that they stay
for the next two days
in this range.
So is this possible?
Well, let's just ask
one of our tools.
And one of the tools is built into a
trading platform, whatever trading
platform you use there.
It is possible to generate
a profile.
So it shows me a risk profile
where I'm selling a call and I'm
selling a put.
And you see, I would make $56
in two days.
So tomorrow, if
it stays right in between there.
And the probability of success
is 80%.
There's an 80% probability that the
strategy will result in a profit.
That does not sound too bad because
you see for one contract,
the margin impact is only
368%. So this means that I
can make here in two
days 10%
based on my margin.
Wow, that's pretty sweet.
Seems that we could be even less
aggressive and choose strike prices
a little bit out of the money here.
But you see, this is the general
idea. I want to show you another
example that I looked at.
Would you like to see another
example? If you would like to see
another example, do me a favor, and
right now just click on like really
quick. Then I'll be happy to show
you a second example so
that you see what I'm looking at.
I'm looking at super high
probability trades and I'll
bring up a second example.
So do me a favor, click on like
right now if you're enjoying this.
OK. Let's actually take a look at
another stock that is reporting
earnings pretty soon.
So there's a stock called Qualcomm.
So Qualcomm are reporting earnings,
oh, even today.
All right, good.
It seems that today, after the bell,
Qualcomm is reporting earnings.
Good.
Let's see what we could do
here with Qualcomm.
And again, all we want to see
is, is there a possibility
to make some money over the next two
days? So same here, I see
that I have options that expire
in just two days from now
and they're reporting earnings this
afternoon. So the idea is that
they're staying within a certain
range within the next two days.
I mean, is it risky?
I don't think so, because if you
look at Qualcomm, here it was
jumping from 73
to 71, not a whole lot.
Before this, during
earnings, they were jumping 5%
up, but then they stayed here.
So they were not running away like
Google, for example, with 10%.
And here earnings, you see this were
the last earnings, we pretty much
the next day were right there.
OK, so here the idea is
that probably also when
they report earnings after the bell
that they won't jump a whole lot.
So let's see what we can get
here for Qualcomm.
And right now, they're trading at
78.
So I'm looking for a strike
price below.
Let's just say if we could go
with 72,
so this would be $6.
That's almost a 10% move, it's
like an 8% move.
Now, we can even be less aggressive
let's do 71.
So 71 we go,
okay, we tried to do this.
And with the 71,
we can probably get $0.16
- $0.17.
And let's also go to the upside
$6 so we would go to the 85.
So let's do this here.
And again, I want to show you the
risk profile. Ah, I
think as I'm recording this, the
markets are closing.
So this is why it doesn't show
it right now, let me see if I can
quickly hit refresh.
So I'm recording this going into the
close.
Probably doesn't show it here.
But again, the margin impact here
is $1,000, and
I would probably get on
this one.
Let's see, we had $0.50.
So not as good
as the previous example.
Now, if you look at 71
and 85, so here
is what could happen
to Qualcomm in the next two days.
We go up to 85 and
71. So if Qualcomm
would stay within this
range over the next two days,
we can collect $50
in two days. And again this where I
would trade size, I would probably
trade 20 so that I can collect a
$1,000 in two days.
And I don't know about you, but this
sounds pretty sweet. So take a look
at this chart. Is it likely that
Qualcomm might stay
within these 71 and
85 over the next two days?
I believe that this is
very possible.
So we will follow up more
on this. But basically what I wanted
to show you right now in this first
video, so this is only the first
probably out of
two or three videos that I do around
this.
So right now, I wanted to show
you how I go from an
idea over testing
the ideas to the rules, so
please, right now, when you write a
comment, don't ask me, "Okay, what
are the rules?" They're not there
yet. I haven't developed them, I'm
just sharing right now
a trading idea.
And the trading idea is based
on selling options.
So this is the idea here that right
before earnings volatility is
high because uncertainty is high,
and that after earnings volatility
plunges. And again, this is where
you have seen I was able over
the last three days to make 3% based
on an account which is not a margin
account, just a regular account.
With margin it would probably be, I
don't know, 2% or 3% a day,
which is amazing, right?
So we are right now here
at the idea and I'm still in the
testing phase.
And if you are enjoying this video
and would like to follow what
happens, I will do some more testing
here over the next few days.
We can probably put some trades
on together so that you see
I'm doing it with super small size
so that you see how this works out.
And honestly, I want to see that I
actually catch a trade where I'm
getting in trouble so that
I can refine the rules and
that I can also develop the tool.
So if you enjoyed this video
and you would like to see other
videos, click on subscribe here
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If you want to continue watching
videos, just click on any
of these videos that make the most
sense to you.
All right. Hope this helps and I'll
see you in the next video.