Options Trading Cheat-Sheet - Strategies for Maximum Gains

Options prices move more than their underlying share prices

• Options are leveraged by nature.
• You dont need to exercise a bought option, instead you make more money by selling it.

Buying Options is usually safer than buying or shorting the underlying shares

• You can only loose the option price, while shorting a share has theoretical no limits on loosing, if the share price rises.
• This is especially true for short-term trades lasting only a few weeks.
• When shorting shares for several months or even years, you have to calculate the costs and maybe its better to short the underlying shares itselfs.

Preparation) Apply a Regime Filter to see if the market is in a good condition for selling options.
Entry) Sell Put-Options on 20 Delta with 45 Days to Expire.
Exit) Buy it back when 21 DTE are left.
When the trade goes against you, roll it to the next month

• The market defines the Premium, not the broker.
• The higher the VIX (S&P Volatility Index), the higher the Premium (broad market reaction).
• Events or the expectation of events drive Option Prices higher (Quarterly Earnings, good or bad news).
• The more the Expiration Date is in the future, the more expensive the Option (time/extrinsic value is higher, hence the share price has more time to move).
• The Black-Scholes Model estimates a fair value.

Options Trading Strategies for Maximum Success

To fully leverage the potential of options trading, it's essential to understand and implement a variety of strategies. This not only broadens your trading repertoire but also enhances your ability to adapt to different market conditions. Here are some of the top strategies to consider:

• Iron Butterflies for Market Stability
An Iron Butterfly strategy is particularly effective in stable markets. By selling an at-the-money call and put, and simultaneously buying an out-of-the-money call and put, traders can capitalize on minimal market movement.

• Straddle for High Volatility
In times of high market volatility, a Straddle strategy can be highly beneficial. By holding both a call and a put option at the same strike price, traders can profit from significant moves in either direction.

• Strangle for High Volatility
A Strangle strategy is similar to a Straddle, but with different strike prices. This strategy involves buying an out-of-the-money call and put, allowing traders to profit from significant moves in either direction.

• Iron Condor for Range-Bound Markets
The Iron Condor is a premium strategy for range-bound markets. This involves selling an out-of-the-money call and put, while also buying a further out-of-the-money call and put, creating a range within which the market can safely operate.

• Vertical Spreads for Directional Trades
For those with a strong market direction bias, Vertical Spreads offer a great way to trade. This involves buying and selling options of the same type (calls or puts) but with different strike prices, allowing for profit if the market moves in the anticipated direction.

• Calendar Spreads for Time Decay
Calendar Spreads take advantage of time decay and differing expiration dates. By selling a short-term option and buying a long-term option of the same strike price, traders can profit as the near-term option loses value faster than the long-term option.

• Protective Collars for Risk Management
A Protective Collar strategy is a risk management tool. It involves holding the underlying asset, buying a put option to limit downside risk, and selling a call option to offset the put's cost. This strategy is ideal for protecting existing gains.

• Butterfly Spread for Low Volatility
A Butterfly Spread is a premium strategy for low volatility markets. It involves buying an in-the-money call and put, while also selling two out-of-the-money calls and puts, creating a range within which the market can safely operate.