PRESENTS

SWING TRADE PRO 2.0

THE 5-STEP SWING TRADING BLUEPRINT
STEP 3: STRATEGY TOOLKIT
 STRATEGY TOOLKIT
BENEFITS OF TRADING OPTIONS
SWING TRADE PRO 2.0
In Step 3: Strategy Toolkit, you will learn about the options strategies that we will use in
3. STRATEGY our strategy toolkit. You will also learn how to choose the right strategy for the
opportunity presenting itself. But first, let’s discuss the benefits of trading options.

TOOLKIT Benefits of Trading Options:

CHOOSE A TRADING STRATEGY
• Less Capital Required: You can trade options using a fraction of the capital required
3.1 Credit Spreads to trade stocks or ETFs, which gives you additional capital to deploy.

3.2 Debit Spreads
• Less Risk: The risk is built into the options strategy that you choose, which allows
3.3 Neutral Strategies you to define your maximum allowable risk, even if the market were to suffer a
3.4 ITM Options catastrophic event, like a flash crash.

3.5 OTM Options • Higher Potential Return: While less capital is required to trade options, they can
3.6 Trade the Underlying return nearly 85% of the potential reward versus owning the stock, which means the
potential return on investment is oftentimes much higher trader options.

• More Strategies: Options provide a plethora of ways to strategically engage the

market, which is a stark contrast to the long-only or short-only approach to stocks.
 STRATEGY TOOLKIT:
CHOOSE A TRADING STRATEGY
SWING TRADE PRO 2.0 The Strategy Toolkit is designed to allow you 3.1 CREDIT SPREADS
to choose trading strategies that are — Put Credit Spread (BULLISH)

3. STRATEGY categorized by their relative risk profiles, thus

allowing you to pick the type of risk that
— Call Credit Spread (BEARISH)

3.2 DEBIT SPREADS

TOOLKIT
you’re willing to take relative to the probability
of profit for the opportunity that you’re — Call Debit Spread (BULLISH)

considering trading.
— Put Debit Spread (BEARISH)

CHOOSE A TRADING STRATEGY 3.3 NEUTRAL STRATEGIES

For example, Credit Spreads are at the low
3.1 Credit Spreads — Long Straddle (BREAKOUT)

end of the risk spectrum, while Neutral

Strategies are at the center and Trade the — Short Iron Butterfly (RANGE)
3.2 Debit Spreads
Underlying is at the high end of the risk 3.4 ITM OPTIONS
3.3 Neutral Strategies spectrum.
— ITM Long Call (BULLISH)

3.4 ITM Options — ITM Long Put (BEARISH)

Look to choose a relatively low-risk strategy,
3.5 OTM Options like a Credit or Debit Spread, for an 3.5 OTM OPTIONS
3.6 Trade the Underlying opportunity with good odds of profitability. — OTM Long Call (BULLISH)

Choose a more aggressive strategy, like ITM

— OTM Long Put (BEARISH)
Long Calls or Puts when the opportunity has
high odds of success. Your ability to 3.6 TRADE THE UNDERLYING
determine which trading strategy is right for — Covered Call (INCOME)

the setup that you are trading will go a long — Protective Put (HEDGE)

way toward building consistency.

— Collar (HEDGE)
 CREDIT SPREADS
Credit Spreads offer a low-risk approach to executing a bias in the market by betting where the
SWING TRADE PRO 2.0 market won’t go. Credit Spreads are an option strategy that pay out a net credit, as you are
selling a higher priced option and buying a lower priced option for protection. This approach

3. STRATEGY allows you to collect premium on the option sold, while limiting your risk with the cheaper
bought option.

TOOLKIT Credit Spread: Involves selling a higher priced option to collect premium, while buying a lower
priced option in the same underlying with the same expiration for risk protection, resulting in a
net credit for the trade.

CHOOSE A TRADING STRATEGY

3.1 Credit Spreads 3.1 CREDIT SPREADS
— Put Credit Spread (BULLISH)

• Put Credit Spread (Bullish)

— Call Credit Spread (BEARISH)
• Call Credit Spread (Bearish)
3.2 Debit Spreads Benefits of Credit Spreads:

3.3 Neutral Strategies • Defined Risk: This strategy allows you to cap your risk for a trade. No matter how the trade
3.4 ITM Options turns out, you cannot lose more than your pre-defined risk.


3.5 OTM Options • Max Profit is Easily Achieved: As long as price remains beyond the option sold, you will
3.6 Trade the Underlying achieve max profit for a trade. In essence, price can go strongly in your favor, mildly in your
favor, or remain flat, and you can still collect max profit with this strategy.


• Time Decay Works in Your Favor: When selling options, time decay is extremely helpful.
 CREDIT SPREADS:
PUT CREDIT SPREAD (BULLISH)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of a Put Credit Spread is to execute a bullish income strategy for a net
credit while also reducing your maximum risk. The sold puts produce the income element, while the

3. STRATEGY bought puts limit your downside risk.

Direction: Bullish/Neutral

TOOLKIT Asset Legs: Short Put (higher strike), Long Put (lower strike)

When to Use: If you think the market will go up or sideways

Profit Characteristics: Retain the net credit if both options expire worthless — This is the ideal
CHOOSE A TRADING STRATEGY scenario for this trade.

3.1 Credit Spreads Loss Characteristics: Difference in strikes less the net credit you received

Decay Characteristics: Time decay is helpful when the position is winning, and harmful when the
• Put Credit Spread (Bullish) position is losing

• Call Credit Spread (Bearish) Max Risk: Capped

Max Reward: Capped

3.2 Debit Spreads

Strategy: 

3.3 Neutral Strategies • Use this strategy when you believe price will move higher or stay flat.

3.4 ITM Options • You’re selling premium, so you want time decay to work in your favor, therefore trade options with
15 days or less to expiration.

3.5 OTM Options • You want both options to expire worthless. If this happens, you won’t have to pay commission to
3.6 Trade the Underlying close the position.

• If the trade hits near max profit early in the trade, go ahead and take the windfall profits

• If the stock rises, both puts expire worthless, and you simply retain the entire net credit.

• If the stock falls, then your breakeven is the higher strike minus the net credit you received.
 CREDIT SPREADS:
PUT CREDIT SPREAD (BULLISH)
SWING TRADE PRO 2.0 EXECUTION: Sell the Put Credit Spread when the underlying reaches your entry trigger.

3. STRATEGY PUT CREDIT SPREAD EXAMPLE:

TOOLKIT
XYZ is trading at 100 in Jan and you believe that price will close above 100 at expiration:

Sell the Feb 100 put for 2.00

CHOOSE A TRADING STRATEGY Buy the Feb 95 put for .50

3.1 Credit Spreads

Risk Profile: 

• Put Credit Spread (Bullish) • Net Credit Transaction: Premium sold - premium bought (2.00 - .50 = 1.50)

• Call Credit Spread (Bearish) • Maximum Risk: Difference in strikes minus net credit ((100 - 95) - 1.50 = 3.50)

• Maximum Reward: Net credit received (1.50)

3.2 Debit Spreads • Breakeven: Higher strike minus net credit (100 - 1.50 = 98.50)

3.3 Neutral Strategies

• Collect 1.50 in Premium, which stays in your account if price closes above 100 at
3.4 ITM Options expiration

3.5 OTM Options • If price remains above 100, allow the options to expire worthless to keep the entire
credit and to avoid paying commissions

3.6 Trade the Underlying

• If price goes against the trade, the breakeven point is the higher strike minus the net
credit received

• Look to cover this trade ahead of expiration to avoid assignment if position is losing
 CREDIT SPREADS:
CALL CREDIT SPREAD (BEARISH)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of a Call Credit Spread is to execute a bearish income strategy for a net
credit while also reducing your maximum risk. The sold calls produce the income element, while the

3. STRATEGY bought calls limit your upside risk.

Direction: Bearish/Neutral

TOOLKIT Asset Legs: Short Call (lower strike), Long Call (higher strike)

When to Use: If you think the market will go down or sideways

Profit Characteristics: Retain the net credit if both options expire worthless — This is the ideal
CHOOSE A TRADING STRATEGY scenario for this trade.

3.1 Credit Spreads Loss Characteristics: Difference in strikes less the net credit

Decay Characteristics: Time decay is helpful when the position is winning, and harmful when the
• Put Credit Spread (Bullish) position is losing

• Call Credit Spread (Bearish) Max Risk: Capped

Max Reward: Capped

3.2 Debit Spreads

Strategy: 

3.3 Neutral Strategies • Use this strategy when you believe price will move lower or stay flat.

3.4 ITM Options • You’re selling premium, so you want time decay to work in your favor, therefore trade options with
15 days or less to expiration.

3.5 OTM Options • You want both options to expire worthless. If this happens, you won’t have to pay commission to
3.6 Trade the Underlying close the trade.

• If the trade hits near max profit early in the trade, go ahead and take the windfall profits

• If the stock falls, both calls expire worthless, and you simply retain the entire net credit.

• If the stock rises, then your breakeven is the lower strike plus the net credit you received.
 CREDIT SPREADS:
CALL CREDIT SPREAD (BEARISH)
SWING TRADE PRO 2.0 EXECUTION: Sell the Call Credit Spread when the underlying reaches your entry trigger.

3. STRATEGY CALL CREDIT SPREAD EXAMPLE:

TOOLKIT
XYZ is trading at 100 in Jan and you believe that price will close below 100 at expiration:

Sell the Feb 100 call for 2.00

CHOOSE A TRADING STRATEGY Buy the Feb 105 call for .50

3.1 Credit Spreads

Risk Profile: 

• Put Credit Spread (Bullish) • Net Credit Transaction: Premium sold - premium bought (2.00 - .50 = 1.50)

• Call Credit Spread (Bearish) • Maximum Risk: Difference in strikes minus net credit ((105 - 100) - 1.50 = 3.50)

• Maximum Reward: Net credit received (1.50)

3.2 Debit Spreads • Breakeven: Lower strike plus net credit (100 + 1.50 = 101.50)

3.3 Neutral Strategies

• Collect 1.50 in Premium, which stays in your account if price closes below 100 at
3.4 ITM Options expiration

3.5 OTM Options • If price remains below 100, allow the options to expire worthless to keep the entire
credit and to avoid paying commissions

3.6 Trade the Underlying

• If price goes against the trade, the breakeven point is the lower strike plus the net credit
received

• Look to cover this trade ahead of expiration to avoid assignment if position is losing
 DEBIT SPREADS
Debit Spreads offer a risk-defined approach to executing a directional bias in the market.
SWING TRADE PRO 2.0 Debit Spreads are an option strategy that results in a net debit, as you are buying a higher
priced option and selling a lower priced option in order to offset time decay, limit risk, and

3. STRATEGY reduce the cost basis of the trade.

Debit Spreads: Involves buying a higher priced option, while selling a lower priced option
TOOLKIT in the same underlying with the same expiration in order to offset the effects of time decay
and reduce cost, resulting in a net debit for the trade.

CHOOSE A TRADING STRATEGY

3.2 DEBIT SPREADS
3.1 Credit Spreads — Call Debit Spread (BULLISH)

3.2 Debit Spreads — Put Debit Spread (BEARISH)

• Call Debit Spread (Bullish)
Benefits of Debit Spreads:
• Put Debit Spread (Bearish)
3.3 Neutral Strategies • Defined Risk: This strategy allows you to cap your risk for a trade. No matter how the
trade turns out, you cannot lose more than the amount you paid for the trade.

3.4 ITM Options

3.5 OTM Options • Time Decay is Offset: Buy selling the lower priced option, you are essentially offsetting
3.6 Trade the Underlying the negative effects of time decay.


• Lower Cost Basis: By selling the lower priced option, you are reducing the cost basis
of the trade, while also improving your breakeven point.
 DEBIT SPREADS:
CALL DEBIT SPREAD (BULLISH)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of a Call Debit Spread is to execute a bullish trade by buying

3. STRATEGY
calls, while reducing your maximum risk by selling calls at a higher strike. The sold calls cap
profit potential, but also reduce your cost basis, risk, and breakeven points.

TOOLKIT Direction: Bullish

Asset Legs: Long Call (lower strike), Short Call (higher strike)

CHOOSE A TRADING STRATEGY When to Use: If you think the market will go up, but with limited upside potential

Profit Characteristics: Max profit is reached if price closes at or above the sold call at
3.1 Credit Spreads expiration — This is the ideal scenario for this trade.

3.2 Debit Spreads Loss Characteristics: Max risk is the net cost of the spread

Decay Characteristics: Time decay is helpful when the position is winning, and harmful
• Call Debit Spread (Bullish) when the position is losing

• Put Debit Spread (Bearish) Max Risk: Capped

Max Reward: Capped

3.3 Neutral Strategies

3.4 ITM Options Strategy: 

• Use this strategy when you believe price will move higher, but has limited upside potential.

3.5 OTM Options • If the stock rises to the higher (sold) call, you make max profit

3.6 Trade the Underlying • If the stock falls below the lower (bought) call, you take a max loss

• If the stock falls somewhere in between, then you must clear the breakeven point, which
is the lower strike plus the net debit.
 DEBIT SPREADS:
CALL DEBIT SPREAD (BULLISH)
SWING TRADE PRO 2.0 EXECUTION: Buy the Call Debit Spread when the underlying reaches your entry
trigger.

3. STRATEGY CALL DEBIT SPREAD EXAMPLE:

TOOLKIT XYZ is trading at 100 in Jan and you believe that price will rally, but has limited upside
CHOOSE A TRADING STRATEGY to about 105:

3.1 Credit Spreads Buy the Feb 100 call for 2.00

3.2 Debit Spreads Sell the Feb 105 call for .50

• Call Debit Spread (Bullish) Risk Profile: 

• Put Debit Spread (Bearish) • Net Debit Transaction: Premium bought - premium sold (2.00 - .50 = 1.50)

• Maximum Risk: Debit paid (1.50)

3.3 Neutral Strategies • Maximum Reward: Difference in strikes minus debit paid ((105 - 100) - 1.50 = 3.50)

3.4 ITM Options • Breakeven: Lower strike plus net debit (100 + 1.50 = 101.50)

3.5 OTM Options

• Max profit occurs if price rises to the higher (sold) strike

3.6 Trade the Underlying • If price closes below the lower (bought) strike at expiration, you take a max loss

• If price closes somewhere between the two strikes, your breakeven is the lower strike
plus the net debit paid
 DEBIT SPREADS:
PUT DEBIT SPREAD (BEARISH)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of a Put Debit Spread is to execute a bearish trade by buying puts,
while reducing your maximum risk by selling puts at a lower strike. The sold puts cap profit

3. STRATEGY potential, but also reduce your cost basis, risk, and breakeven points.

Direction: Bearish

TOOLKIT Asset Legs: Long Put (higher strike), Short Put (lower strike)

When to Use: If you think the market will go down, but with limited downside potential

Profit Characteristics: Max profit is reached if price closes at or below the sold put at expiration
CHOOSE A TRADING STRATEGY — This is the ideal scenario for this trade.

3.1 Credit Spreads Loss Characteristics: Max risk is the net cost of the spread

Decay Characteristics: Time decay is helpful when the position is winning, and harmful when the
3.2 Debit Spreads position is losing

• Call Debit Spread (Bullish) Max Risk: Capped

Max Reward: Capped

• Put Debit Spread (Bearish)

Strategy: 

3.3 Neutral Strategies • Use this strategy when you believe price will move lower, but has limited downside potential.

3.4 ITM Options • If the stock falls to the lower (sold) put, you make max profit. If this happens prior to expiration,
go ahead and take profits.

3.5 OTM Options • If the sold options loses its value, you can take profits on this leg, and hold the long option as a
3.6 Trade the Underlying free trade.

• If the stock rises above the higher (bought) put, you take a max loss

• If the stock falls somewhere in between, then you must clear the breakeven point, which is the
higher strike minus the net debit.
 DEBIT SPREADS:
PUT DEBIT SPREAD (BEARISH)
SWING TRADE PRO 2.0 EXECUTION: Buy the Put Debit Spread when the underlying reaches your entry trigger.

3. STRATEGY PUT DEBIT SPREAD EXAMPLE:

XYZ is trading at 100 in Jan and you believe that price will fall, but has limited downside to
TOOLKIT about 95:

CHOOSE A TRADING STRATEGY Buy the Feb 100 put for 2.00

Sell the Feb 95 put for .50

3.1 Credit Spreads

3.2 Debit Spreads Risk Profile: 
• Net Debit Transaction: Premium bought - premium sold (2.00 - .50 = 1.50)

• Call Debit Spread (Bullish) • Maximum Risk: Debit paid (1.50)

• Put Debit Spread (Bearish) • Maximum Reward: Difference in strikes minus debit paid ((100 - 95) - 1.50 = 3.50)

• Breakeven: Higher strike minus net debit (100 - 1.50 = 98.50)

3.3 Neutral Strategies

3.4 ITM Options • Max profit occurs if price falls to the lower (sold) strike. Will take profits if this happens prior to
expiration.

3.5 OTM Options • If price closes above the higher (bought) strike at expiration, you take a max loss. If this
3.6 Trade the Underlying happens prior to expiration, there is no harm in holding onto the position, as there is always a
chance it could finish with value given there’s still time remaining to expiration.

• If price closes somewhere between the two strikes, your breakeven is the higher strike minus
the net debit paid
 NEUTRAL STRATEGIES
SWING TRADE PRO 2.0 Neutral Options Strategies are those that allow traders to make money in markets that
will either remain range-bound, or have the potential to see significant expansion.

3. STRATEGY While there are many different strategies for trading a neutral market, we will primarily
focus on executing Long Straddles for markets that are poised for expansion and

TOOLKIT selling Iron Butterflies for collecting premium during range-bound markets.

3.3 NEUTRAL STRATEGIES

CHOOSE A TRADING STRATEGY
— Long Straddle (BREAKOUT)

3.1 Credit Spreads — Iron Butterfly (RANGE)

3.2 Debit Spreads
Benefits of Neutral Strategies:
3.3 Neutral Strategies
• Long Straddle (Breakout) • Make Money When You Don’t Know Direction: Long Straddles allow traders to
• Short Iron Butterfly (Range) make money even when you don’t know which direction the market will break.
However, you need enough of a breakout to cover the cost of executing this strategy.

3.4 ITM Options

3.5 OTM Options • Make Money When the Market is Range Bound: Short Iron Butterflies allow traders
to make money when a market has become range-bound. In essence, you are able to
3.6 Trade the Underlying take advantage of situations when the market isn’t moving by selling premium.
Commission costs can add up quickly with this four-leg trade, so use accordingly.
 NEUTRAL STRATEGIES
LONG STRADDLE (BREAKOUT)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of a Long Straddle is to execute a neutral trade for a capital gain while
expecting a surge in volatility. Ideally you are looking for a scenario where Implied Volatility is currently

3. STRATEGY very low, giving you cheaper option prices, but the stock is about to make an explosive move — you
just don’t know which direction.

TOOLKIT Direction: Neutral (Breakout)

Asset Legs: Long Call, Long Put (same strike and expiration)

When to Use: When premiums are low and you think the market is ready for an explosive breakout in
CHOOSE A TRADING STRATEGY either direction

3.1 Credit Spreads Profit Characteristics: Profit is open-ended in both directions

Loss Characteristics: Limited to the cost of the spread; max loss occurs if the market closes at your
3.2 Debit Spreads strike at expiration

Decay Characteristics: Time decay really works against this position

3.3 Neutral Strategies

Max Risk: Capped

• Long Straddle (Breakout) Max Reward: Uncapped

• Short Iron Butterfly (Range) Strategy: 

3.4 ITM Options • Use this strategy when premiums are low and you believe price will see a breakout in either direction

• This is a high cost trade; needs a big enough move to cover costs

3.5 OTM Options • Consider this trade ahead of earnings or news

• Consider stocks with price ranges that are compressed and ready for range expansion

3.6 Trade the Underlying

• Buy puts/calls with 45+ days to expiration

• If the stock hasn’t moved, sell your position to avoid holding into the last month (to avoid serious
time decay)
 NEUTRAL STRATEGIES
LONG STRADDLE (BREAKOUT)
SWING TRADE PRO 2.0 EXECUTION: Buy the Long Straddle when the price of the underlying is at, or very close, to the
strike you wish to straddle, and when volatility is low (to pay cheaper premiums).

3. STRATEGY LONG STRADDLE EXAMPLE:

TOOLKIT XYZ is trading at 100 in Jan and you believe that price will experience a significant breakout
soon, but direction is unknown:

CHOOSE A TRADING STRATEGY

Buy the Apr 100 call for 2.55

3.1 Credit Spreads Buy the Apr 100 put for 2.25

3.2 Debit Spreads

Risk Profile: 
3.3 Neutral Strategies
• Long Straddle (Breakout) • Net Debit Transaction: Premiums bought (2.55 + 2.25 = 4.80)

• Maximum Risk: Debit paid (4.80)

• Short Iron Butterfly (Range) • Maximum Reward: Unlimited (∞)

3.4 ITM Options • Breakeven Up: Strike + net debit (100 + 4.80 = 104.80)

• Breakeven Down: Strike - net debit (100 - 4.80 = 95.20)

3.5 OTM Options

3.6 Trade the Underlying • This trade needs a big enough breakout to cover the net debit cost

• Execute this strategy when volatility is low to pay cheaper premiums

• If price doesn’t move, look to exit this trade 20-30 days before expiration, as time decay will
begin to work doubly against the trade
 NEUTRAL STRATEGIES
SHORT IRON BUTTERFLY (RANGE)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of a Short Iron Butterfly is to execute a neutral trade for a capital gain while
expecting price to remain mostly range-bound. Ideally you are looking for a scenario where Implied
3. STRATEGY Volatility is currently very high, giving you high option premiums to sell, but price action is likely to
become range bound as volatility decreases. This strategy combines Put and Call Credit Spreads.

TOOLKIT Direction: Neutral (Range)

Asset Legs: Short ATM Call, Short ATM Put, Long OTM Call, Long OTM Put (same strike and expiration)

CHOOSE A TRADING STRATEGY When to Use: When premiums are high and you expect the market to become range-bound

Profit Characteristics: Profit is limited to the net credit received; Max profit occurs if the market closes
3.1 Credit Spreads precisely at the sold strike at expiration

Loss Characteristics: Limited to the difference in strikes minus the net credit received

3.2 Debit Spreads Decay Characteristics: Time decay significantly helps this trade

Max Risk: Capped

3.3 Neutral Strategies

Max Reward: Capped

• Long Straddle (Breakout)

Strategy: 

• Short Iron Butterfly (Range) • Use this strategy when premiums are high and you believe price will become range-bound and
3.4 ITM Options volatility will drop

• For a neutral bias, sell the ATM puts and calls. Add a directional bias to the position by selling puts/
3.5 OTM Options calls above or below current price.

• Do not trade this strategy ahead of earnings or news

3.6 Trade the Underlying • Consider stocks that have experienced major volatility and are due for compression

• Use this strategy with 30 days or less to expiration, but preferably less than 15 days to expiration

• Look to close out the position just before expo, as most of the profit will be realized closer to expo
 NEUTRAL STRATEGIES
SHORT IRON BUTTERFLY (RANGE)
SWING TRADE PRO 2.0 EXECUTION: Sell the Iron Butterfly when the price of the underlying is at, or very close, to the strike you
wish to straddle, and when implied volatility is high (in order to collect higher premiums).

3. STRATEGY SHORT IRON BUTTERFLY EXAMPLE:

TOOLKIT XYZ is trading at 100 in Jan and you believe volatility will decline and that price will remain around 100
by the next expiration.

CHOOSE A TRADING STRATEGY Buy the Feb 105 call for .40

Sell the Feb 100 call for 2.00

3.1 Credit Spreads Sell the Feb 100 put for 2.40

Buy the Feb 95 put for .60

3.2 Debit Spreads

3.3 Neutral Strategies Risk Profile: 

• Long Straddle (Breakout) • Net Credit Transaction: Premium sold - premium bought (4.40 - 1.00 = 3.40)

• Short Iron Butterfly (Range) • Maximum Risk: (Sold strike - bought strike) - net credit ((100 - 95) - 3.40 = 1.60)

• Maximum Reward: Net credit received (3.40)

3.4 ITM Options • Breakeven Up: Sold strike + net credit (100 + 3.40 = 103.40)

• Breakeven Down: Sold strike - net credit (100 - 3.40 = 96.60)

3.5 OTM Options

3.6 Trade the Underlying • This trade needs implied volatility to drop and for price to remain near the sold strike

• Execute this strategy when volatility is high to collect higher premiums

• Look to close out this trade ahead of expiration to avoid potential assignment

• This is a high cost trade; use accordingly

 NEUTRAL STRATEGIES
SHORT IRON BUTTERFLY (RANGE) Buy 40 Call
The objective of a Short Iron Butterfly is to execute a neutral trade for a capital Breakeven Up: 39.25
gain while expecting price to remain mostly range-bound. Ideally you are
looking for a scenario where Implied Volatility is currently very high, giving you
high option premiums to sell, but price action is likely to become range bound Sell 37 Call

as volatility decreases. This strategy combines Put and Call Credit Spreads. Sell 37 Put
TIPS:
— Sell the Iron Fly when implied volatility is high to collect higher premiums

— Sell the Iron Fly when price is likely to become range-bound

Breakeven Dn: 34.75
— Sell the Iron Fly when implied volatility is likely to decline

— Do not use this strategy ahead of earnings or anticipated news

Buy 34 Put
— Buy farther OTM calls/puts for a wider breakeven range
EXECUTION: Sell the Iron Butterfly when the
price of the underlying is at, or very close, to
the strike you wish to sell, and when volatility
is high (to collect higher premiums).

EXAMPLE:
— Sell 20 APR (22) 37 Call

— Sell 20 APR (22) 37 Put

— Buy 20 APR (22) 40 Call

IRON BUTTERFLY CREDITS: — Buy 20 APR (22) 40 Put

29 MAR — Net Credit: 2.25

6 APR (8) Weekly:

1.85
— Max Risk: 0.75 (37 - 34 - 2.25 = 0.75)

13 APR (15) Weekly:

2.10
— Max Reward: 2.25 (credit received)
20 APR (22) Monthly: 2.25
 NEUTRAL STRATEGIES
SHORT IRON BUTTERFLY (RANGE) Buy 40 Call
Use the Short Iron Butterfly strategy after price Breakeven Up: 39.25
experiences volatility and is likely due for
compression. This trade needs implied volatility to 20 APR
drop and for price to remain near the sold strike.
Sell 37 Call

TIPS: Sell 37 Put

— Look to close out the position just before
expo, as most of the profit will be realized
closer to expiration

— For a neutral bias, sell the ATM puts/calls 6 APR Breakeven Dn: 34.75
— For directional bias, sell puts/calls above Buy 34 Put
or below current price
13 APR

EXAMPLE:
Notice how the value of the Iron
— Value of 20 APR Iron Butterfly (at expo): 0.67

Butterfly fluctuates as price gets

— Value of 20 APR 40 Call: 0.00

closer and farther away from the

— Value of 20 APR 37 Call: 0.00

sold strikes, and how this impacts

— Value of 20 APR 37 Put: 0.67

options with closer expirations — Value 20 APR 34 Put: 0.00

versus expirations farther away

— Final Credit: 1.58 (2.25 - 0.67 = 1.58)

IRON BUTTERFLY CREDITS:

29 MAR 2 APR 6 APR 13 APR 20 APR
6 APR (8) Weekly:
1.85
1.75
.52
NT
NT

13 APR (15) Weekly:

2.10
2.07
1.72
2.27
NT

20 APR (22) Monthly: 2.25 2.30 2.00 2.15 .67

 ITM OPTIONS
ITM Options are options that are “in-the-money,” which means the stock price is above
SWING TRADE PRO 2.0 the strike price for calls, and below the strike price for puts, thus giving these options
intrinsic and time value. These options are more expensive, and the farther in-the-

3. STRATEGY money they are, the more expensive the options become.

ITM Options: In-the-money options means the stock price is above the strike price (for
TOOLKIT calls) or below the strike price (for puts), which gives these options intrinsic and time
value, thus making them more valuable and expensive.

CHOOSE A TRADING STRATEGY

3.4 ITM OPTIONS
3.1 Credit Spreads
— ITM Long Calls (BULLISH)

3.2 Debit Spreads — ITM Long Puts (BEARISH)

3.3 Neutral Strategies
Benefits of ITM Options:
3.4 ITM Options
• ITM Long Calls (Bullish) • Have More Value: ITM Options have more value, so you get what you pay for with
• ITM Long Puts (Bearish) these options. These options will retain more value if the position begins to go
against you due to intrinsic value.

3.5 OTM Options
3.6 Trade the Underlying • Slightly Less Risky: ITM Options are less risky compared to their OTM counterparts
due to having both intrinsic and time value, which means they will be more forgiving
should the position begin to go against your desired direction.
 ITM OPTIONS
ITM LONG CALLS (BULLISH)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of using ITM Long Calls is to execute a bullish trade when you
are highly bullish and want to be aggressive. This approach improves overall return versus

3. STRATEGY buying the underlying outright, while inherently protecting your downside risk.

Direction: Bullish

TOOLKIT Asset Legs: Long Calls (Delta 70 or higher)

When to Use: When you are highly bullish

CHOOSE A TRADING STRATEGY Profit Characteristics: Profit increases as the market rises, with unlimited profit potential

Loss Characteristics: Max risk is the amount paid for the calls

3.1 Credit Spreads

Decay Characteristics: Time decay erodes the value of the options as expiration
3.2 Debit Spreads approaches

3.3 Neutral Strategies Max Risk: Capped

Max Reward: Unlimited

3.4 ITM Options

• ITM Long Calls (Bullish) Strategy: 

• Use this strategy when you are extremely bullish and believe price will move higher

• ITM Long Puts (Bearish)

• The cost of the option will be higher, which carries more risk, but being “in the money”
3.5 OTM Options gives the option more intrinsic value

3.6 Trade the Underlying • Give yourself enough time to be right before expiration (30-45 days)

• The trade is profitable at expiration if price closes above the breakeven point, which is
the strike plus the price paid for the option

• If the stock falls below the strike of the call, you take a max loss
 ITM OPTIONS
ITM LONG CALLS (BULLISH)
SWING TRADE PRO 2.0 EXECUTION: Buy the ITM Long Call options (70 Delta or better) when the price of the
underlying reaches your entry trigger.

3. STRATEGY ITM LONG CALL EXAMPLE:

TOOLKIT XYZ is trading at 100 in Jan and you believe that price will experience a high probability move to
the upside.

CHOOSE A TRADING STRATEGY

Buy the Feb 97.50 call for 3.55

3.1 Credit Spreads

3.2 Debit Spreads Risk Profile: 

3.3 Neutral Strategies • Net Debit Transaction: Premium bought (3.55)

3.4 ITM Options • Maximum Risk: Debit paid (3.55)

• Maximum Reward: Unlimited (∞)

• ITM Long Calls (Bullish) • Breakeven: Strike + net debit (97.50 + 3.55 = 101.05)

• ITM Long Puts (Bearish)

• This trade needs a big enough move to cover the net debit cost

3.5 OTM Options • Execute this strategy when you expect a high probability move higher

3.6 Trade the Underlying • It is not necessary to hold this trade to expiration, especially if your profit target(s) have been
reached

• Give yourself enough time in the trade (days to expiration) to be right, ideally 45+ days to
expiration
 ITM OPTIONS
ITM LONG PUTS (BEARISH)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of using ITM Long Puts is to execute a bearish trade when you are
highly bearish and want to be aggressive. This approach improves overall return versus selling
3. STRATEGY the underlying outright, while inherently protecting your upside risk.

TOOLKIT
Direction: Bearish

Asset Legs: Long Puts (Delta 70 or higher)

When to Use: When you are highly bearish

CHOOSE A TRADING STRATEGY Profit Characteristics: Profit increases as the market falls, with unlimited profit potential

3.1 Credit Spreads Loss Characteristics: Max risk is the amount paid for the puts

Decay Characteristics: Time decay erodes the value of the options as expiration approaches

3.2 Debit Spreads Max Risk: Capped

3.3 Neutral Strategies Max Reward: Unlimited (to a stock price of zero)

3.4 ITM Options Strategy: 

• ITM Long Calls (Bullish) • Use this strategy when you are extremely bearish and believe price will move lower

• The cost of the option will be higher, which carries more risk, but being “in the money” gives
• ITM Long Puts (Bearish) the option more intrinsic value

3.5 OTM Options • Give yourself enough time to be right before expiration (30-45 days)

• The trade is profitable at expiration if price closes below the breakeven point, which is the
3.6 Trade the Underlying strike minus the price paid for the put

• If the stock rises above the strike of the put, you take a max loss — in this scenario just
allow the puts to expire worthless (pay no commission, and you don’t have to deliver stock)
 ITM OPTIONS
ITM LONG PUTS (BEARISH)
SWING TRADE PRO 2.0 EXECUTION: Buy the ITM Long Put options (70 Delta or better) when the price of the
underlying reaches your entry trigger.

3. STRATEGY ITM LONG PUT EXAMPLE:

TOOLKIT XYZ is trading at 100 in Jan and you believe that price will experience a high probability move to
the downside.

CHOOSE A TRADING STRATEGY

Buy the Feb 102.50 put for 3.55

3.1 Credit Spreads

3.2 Debit Spreads Risk Profile: 

3.3 Neutral Strategies • Net Debit Transaction: Premium bought (3.55)

3.4 ITM Options • Maximum Risk: Debit paid (3.55)

• Maximum Reward: Unlimited (to zero)

• ITM Long Calls (Bullish) • Breakeven: Strike - net debit (102.50 - 3.55 = 98.95)

• ITM Long Puts (Bearish)

• This trade needs a big enough move to cover the net debit cost

3.5 OTM Options • Execute this strategy when you expect a high probability move lower

3.6 Trade the Underlying • It is not necessary to hold this trade to expiration, especially if your profit target(s) have been
reached

• Give yourself enough time in the trade (days to expiration) to be right, ideally 45+ days to
expiration
 OTM OPTIONS
OTM Options are options that are “out-of-the-money,” which means the stock price is below the
strike price for calls, and above the strike price for puts, thus giving these options time value,
SWING TRADE PRO 2.0 but not intrinsic value. These options are cheap, and the farther out-of-the-money they are, the
cheaper the options become. These options are typically called “lottery tickets” because of

3. STRATEGY potentially explosive percentage gains, but are EXTREMELY risky, and should only be traded
sparingly.

TOOLKIT OTM Options: Out-of-the-money options means the stock price is below the strike price for
calls or above the strike price for puts, which leaves these options with time value, but not
CHOOSE A TRADING STRATEGY intrinsic value, thereby making them less valuable and less expensive.

3.1 Credit Spreads 3.5 ITM OPTIONS

— OTM Long Calls (BULLISH)

3.2 Debit Spreads

— OTM Long Puts (BEARISH)
3.3 Neutral Strategies
3.4 ITM Options Benefits of OTM Options:

3.5 OTM Options • They are Cheap: It is not uncommon to pay pennies for OTM options, and for good cause —
• OTM Long Calls (Bullish) the likelihood of price being ITM at expiration is quite low. So while they’re quite cheap, the
risk of losing the entire amount paid for the option is high, unless you are very right on
• OTM Long Puts (Bearish) direction and timing.

3.6 Trade the Underlying
• Percentage Gain Can Be Big: Because of the cheap nature of OTM options, major
percentage gains can be seen if price explodes in your desired direction. However, time decay
hits OTM options harder than their ITM counterparts, so exercise caution.
 OTM OPTIONS
OTM LONG CALLS (BULLISH)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of using OTM Long Calls is to execute a bullish trade when you are either
extremely bullish or want a “lottery ticket” approach to a trade. This approach reduces the cost of the

3. STRATEGY trade, and also increases the potential return. However, this play is very risky because OTM options do
not have intrinsic value and have greater odds of expiring worthless, thus resulting in complete loss of
the trade.

TOOLKIT Direction: Bullish

Asset Legs: Long Calls

CHOOSE A TRADING STRATEGY When to Use: When you are extremely bullish, or want a “lottery ticket"

Profit Characteristics: Profit increases as the market rises, with unlimited profit potential

3.1 Credit Spreads Loss Characteristics: Max risk is the amount paid for the calls

3.2 Debit Spreads Decay Characteristics: Time decay erodes the value of OTM options at a much higher rate than ITM
options

3.3 Neutral Strategies Max Risk: Capped

Max Reward: Unlimited

3.4 ITM Options

3.5 OTM Options Strategy:

• Use this strategy when you are extremely bullish

• OTM Long Calls (Bullish) • Go slightly OTM to reduce your cost basis

• Go deep OTM when you want a “lottery ticket” approach to a trade

• OTM Long Puts (Bearish)

• The cost of the option will be cheap, which carries less capital risk, but the deeper OTM the more risk
3.6 Trade the Underlying is incurred

• Give yourself enough time to be right before expiration (45+ days)

• Max risk is the amount paid for the option

• You want a quick move in your desired direction

 OTM OPTIONS
OTM LONG CALLS (BULLISH)
SWING TRADE PRO 2.0 EXECUTION: Buy the OTM Long Call options (30 Delta or lower) when the price of the underlying
reaches your entry trigger.

3. STRATEGY OTM LONG CALL EXAMPLE:

TOOLKIT XYZ is trading at 100 in Jan and you believe that price has the potential to see a major upside move
to 115 or beyond.

CHOOSE A TRADING STRATEGY Buy the Mar 110 call for 0.35

3.1 Credit Spreads

Risk Profile: 
3.2 Debit Spreads
• Net Debit Transaction: Premium bought (0.35)

3.3 Neutral Strategies

• Maximum Risk: Debit paid (0.35)

3.4 ITM Options • Maximum Reward: Unlimited (∞)

• Breakeven: Strike + net debit (110 + 0.35 = 110.35)

3.5 OTM Options

• OTM Long Calls (Bullish) • Execute this strategy when you anticipate a potentially explosive move to the upside, but would
rather risk the small debit paid (lottery ticket)

• OTM Long Puts (Bearish) • You typically want to see price move in your desired direction quickly, otherwise, time decay will
3.6 Trade the Underlying begin to erode this position

• It is not necessary to hold this trade to expiration, especially if your profit target(s) have been
reached

• Give yourself enough time in the trade (days to expiration) to be right, ideally 45+ days to expiration
 OTM OPTIONS
OTM LONG PUTS (BEARISH)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of using OTM Long Puts is to execute a bearish trade when you are either
extremely bearish or want a “lottery ticket” approach to a trade. This approach reduces the cost of the

3. STRATEGY trade, and also increases the potential return. However, this play is very risky because OTM options do
not have intrinsic value and have greater odds of expiring worthless, thus resulting in complete loss of
the trade.

TOOLKIT Direction: Bearish

Asset Legs: Long Puts

CHOOSE A TRADING STRATEGY When to Use: When you are extremely bearish, or want a “lottery ticket"

Profit Characteristics: Profit increases as the market falls, with unlimited profit potential

3.1 Credit Spreads Loss Characteristics: Max risk is the amount paid for the puts

3.2 Debit Spreads Decay Characteristics: Time decay erodes the value of OTM options at a much higher rate than ITM
options

3.3 Neutral Strategies Max Risk: Capped

Max Reward: Unlimited (to a stock price of zero)

3.4 ITM Options

3.5 OTM Options Strategy:

• Use this strategy when you are extremely bearish

• OTM Long Calls (Bullish) • Go slightly OTM to reduce your cost basis

• Go deep OTM when you want a “lottery ticket” approach to a trade

• OTM Long Puts (Bearish)

• The cost of the option will be cheap, which carries less capital risk, but the deeper OTM the more risk
3.6 Trade the Underlying is incurred

• Give yourself enough time to be right before expiration (45+ days)

• Max risk is the amount paid for the option

• You want a quick move in your desired direction

 OTM OPTIONS
OTM LONG PUTS (BEARISH)
SWING TRADE PRO 2.0 EXECUTION: Buy the OTM Long Put options (30 Delta or lower) when the price of the underlying
reaches your entry trigger.

3. STRATEGY OTM LONG PUT EXAMPLE:

TOOLKIT XYZ is trading at 100 in Jan and you believe that price has the potential to see a major downside
move to 85 or beyond.

CHOOSE A TRADING STRATEGY Buy the Mar 90 put for 0.35

3.1 Credit Spreads Risk Profile:
3.2 Debit Spreads
• Net Debit Transaction: Premium bought (0.35)
3.3 Neutral Strategies • Maximum Risk: Debit paid (0.35)
• Maximum Reward: Unlimited (∞)
3.4 ITM Options • Breakeven: Strike - net debit (90 - 0.35 = 89.65)
3.5 OTM Options
• Execute this strategy when you anticipate a potentially explosive move to the downside, but
• OTM Long Calls (Bullish) would rather risk the small debit paid (lottery ticket) than pay a larger premium
• You typically want to see price move in your desired direction quickly, otherwise, time decay will
• OTM Long Puts (Bearish) begin to erode this position
3.6 Trade the Underlying • It is not necessary to hold this trade to expiration, especially if your profit target(s) have been
reached
• Give yourself enough time in the trade (days to expiration) to be right, ideally 45+ days to
expiration
 TRADE THE UNDERLYING
STOCKS, ETFS, FUTURES, FOREX, CRYPTO
SWING TRADE PRO 2.0 While “trading the underlying” isn’t necessarily an options strategy, sometimes it is the
appropriate strategy for the specific opportunity presenting itself. In this section, you’ll learn
3. STRATEGY the benefits of trading the underlying (buying and selling shares/contracts in stocks, futures,
etc.) versus trading an options strategy. Additionally, you’ll learn how to generate income

TOOLKIT
from a position, and how to hedge a position, using options.

3.6 TRADE THE UNDERLYING

CHOOSE A TRADING STRATEGY — Covered Call (INCOME)

— Protective Put (HEDGE)

3.1 Credit Spreads

— Collar (HEDGE)
3.2 Debit Spreads
3.3 Neutral Strategies Benefits of Trading the Underlying:

3.4 ITM Options • Easy to Understand: Trading stocks and futures is much easier to understand than trading
3.5 OTM Options options, which makes for an easy transition for beginners, as Options can be complex to
understand at first.

3.6 Trade the Underlying

• Covered Call (Income) • Liquidity: Volume and liquidity tends to be much better in the equities and futures markets
versus options, which is extremely helpful in getting filled on entries/exits.

• Protective Put (Hedge)

• Collar (HEDGE) • No Time Decay/Constraint: There is no time constraint on the position, which allows you
to hold for longer time periods of time as markets trend for months or years.
 TRADE THE UNDERLYING
COVERED CALL (INCOME)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of using a Covered Call strategy is to generate income from a
long position in the underlying that you intend to keep for the long term, but are willing to

3. STRATEGY sell if the underlying reaches a specific price (the call strike price).

Direction: Bullish

TOOLKIT Asset Legs: Long Underlying, Short OTM Calls

When to Use: When you are long shares/contracts of the underlying and want to generate
CHOOSE A TRADING STRATEGY income by selling premium

Profit Characteristics: Retain the credit if the call options expire worthless — This is the
3.1 Credit Spreads
ideal scenario for this trade if wanting to generate income

3.2 Debit Spreads Decay Characteristics: Time decay erodes the value of OTM options at a much higher
3.3 Neutral Strategies rate than ITM options, which is very helpful for this trade

Max Risk: Credit received minus any downside risk from owning shares/contracts

3.4 ITM Options Max Reward: Capped to credit received plus any potential gains from share assignment

3.5 OTM Options

Strategy:

3.6 Trade the Underlying

• Use this strategy when you are long shares/contracts and want extra income

• Covered Call (Income) • Use this strategy after you’ve enjoyed a profitable move and are okay with selling your
• Protective Put (Hedge) shares/contracts should the sold strike price be reached and assigned

• Buy shares/contracts and sell calls at the same time to lower cost (“Buy/Write”)

• Collar (HEDGE) • Sell far OTM Calls to generate income and lessen the odds of assignment

• Use this strategy with weekly and monthly options for generating income frequently
 Sell 60 Call (0.24 credit)
TRADE THE UNDERLYING Sell 55 Call (0.65 credit)
COVERED CALL (INCOME)
The objective of using a Covered Call strategy is to
generate income from a long position in the underlying that
you intend to keep for the long term, but are willing to sell if
the underlying reaches a specific price (the call strike price).

TIPS:
— Sell calls when implied volatility is high to
collect more premium, like before earnings

— Sell farther OTM calls if you don’t really

intend to sell your shares

EXAMPLE:
— Sell closer OTM calls if you’ve profited
— Long 1000 shares @ 31.00

quite a bit in the underlying and are ready to

— Sell 10 Aug Weekly (2) 55
exit the position
Call for 0.65 (10 contracts)

— Net Credit: 0.65 ($650)

— Max Risk: 0.65 credit minus

any downside risk from being
long 1000 shares

— Max Reward: 0.65 credit

plus 1000 shares x 24 points
from stock position

EXECUTION: You’re long shares from 31 and want to

Long 1000
generate additional income by selling OTM call options
Shares from 31 at 55 or 60 with earnings due after the closing bell. If CLVN
the strike is reached and the calls are exercised, you
are okay with selling your shares in the underlying.
 TRADE THE UNDERLYING ALTERNATE OPTION: Had the 60 60 Call
COVERED CALL (INCOME) call been selected, it would’ve
The Covered Call strategy offers a great way to book expired worthless. The 0.24 credit
consistent income (weekly/monthly) from a long term would be retained, and there
position in the underlying. This strategy offers a low risk would be no need to sell the 1000
55 Call
share position in the underlying
approach to squeezing out extra profit from a position you
already intend to hold, but are happy to book profits on.
OPTION EXERCISED: ROKU beats
TIPS: on earnings, triggering a rally the
— Use this strategy weekly or monthly to squeeze more next two days, with price closing at
income out of each expiration cycle while you’re holding 58.10. The sold 55 call is exercised,
a long term position
and we must sell our 1000 share
— Use this strategy at the entry of a new long term position in the underlying for 55,
position in the underlying in order to reduce cost upfront giving the trade a 24 point gain.
by collecting the credit of the sold call (“Buy/Write”)

EXAMPLE:
— Value of 10 Aug 55 Call (at expiration): 3.10

— Net Gain: (0.65 credit x 10 contracts) + (1000 shares x 24 points gained) = $24,650

Long 1000

Shares from 31 CLVN

 TRADE THE UNDERLYING
PROTECTIVE PUT (HEDGE)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of using a Protective Put strategy is to protect a long position
in the underlying against a downturn. Execute this strategy when you intend to hold a
3. STRATEGY position in the underlying for the foreseeable future, but want to protect profits in the
event of selling pressure ahead of news or earnings.

TOOLKIT Direction: Bullish

Asset Legs: Long Underlying, Long OTM Puts

CHOOSE A TRADING STRATEGY

When to Use: When you are bullish, but want downside protection

3.1 Credit Spreads Profit Characteristics: Profit increases as the market rises, with unlimited profit potential

3.2 Debit Spreads Loss Characteristics: Max risk is the amount paid for the puts

Decay Characteristics: Time decay will negatively affect the value of the option

3.3 Neutral Strategies Max Risk: Capped

3.4 ITM Options Max Reward: Unlimited

3.5 OTM Options Strategy:

3.6 Trade the Underlying • Use this strategy when you are bullish and want to protect gains from a downturn

• Covered Call (Income) • Buy OTM puts to reduce your cost basis

• Buy ATM or ITM puts if you are confident and want to profit from the downturn

• Protective Put (Hedge) • Ideally, price will rally enough to cover the cost of the protective put, or price will sell off
• Collar (HEDGE) enough to capitalize on the move using the bought puts

• This strategy is a better, although more expensive, alternative to using stop orders
 TRADE THE UNDERLYING
PROTECTIVE PUT (HEDGE)
The objective of using a Protective Put strategy is to protect a
long position in the underlying against a downturn. Execute this
strategy when you intend to hold a position in the underlying
for the foreseeable future, but want to protect profits in the
event of selling pressure ahead of news or earnings.

EXECUTION: You’re long shares in the underlying

from $3/share and want to protect the position by
buying the ATM 3 put ahead of earnings in 9 days.

Long 1000

Buy 3 Put
Shares from 3

EXAMPLE:
— Long 1000 shares @ 3.00

— Buy 3 Aug Weekly (9) 3 Put

TIPS: for 0.30 (10 contracts)

— Buy a Protective Put ahead of earnings, but look to — Net Debit: 0.30 ($300)

buy the option 5 to 10 days ahead of earnings, as — Max Risk: 0.30 ($300)

options will become more expensive as implied — Max Reward: Unlimited (∞)
volatility increases the closer earnings gets

— Buy ATM or slightly OTM puts to reduce cost basis

— Buy ITM if you are confident price will move lower

and you want to profit from the move
 TRADE THE UNDERLYING
PROTECTIVE PUT (HEDGE) TIPS:
The Protective Put strategy offers a great way to hedge a — You can choose to allow the put option to expire ITM and
long position in the underlying ahead of news or earnings. collect the gains to offset the decline in the underlying

— You can choose to exercise the put option at the $3

While more expensive, buying puts offers a better way to strike, which allows you to sell your 1000 shares at $3/share

protect a position than simply using a stop order. — If price were to have closed above $3, you can choose to
allow the option to expire worthless, thus avoiding paying
commission on the exit and only taking the .30 loss while
capitalizing on the rally in the underlying

Long 1000

Buy 3 Put
Shares from 3

Failed Absorption: Price drops through

the absorption zone and sells off ahead
EXAMPLE: of earnings, and then gaps down on the
— Long Shares: 1000 shares x .84 (3 - 2.16) = $840 loss
earnings announcement, closing the
— Value of 3 Aug 3 Put (at expiration): 0.84
week 84 cents below the $3 strike. By
— Net Gain: 0.84 - 0.30 = .54 (.54 x 10 contracts = $540 gain) buying the put, you are able to offset
most of the losses in the underlying.
 TRADE THE UNDERLYING
COLLAR (HEDGE)
SWING TRADE PRO 2.0 OBJECTIVE: The objective of using a Collar strategy is to protect a position in the
underlying by buying puts ahead of news or earnings, while selling calls to help offset
3. STRATEGY the cost of the bought puts. You must be okay with selling your shares in the underlying
if the calls are exercised.

TOOLKIT Direction: Bullish

Asset Legs: Long Underlying, Long OTM Puts, Short OTM Calls

CHOOSE A TRADING STRATEGY

When to Use: When you are long shares/contracts of the underlying and want to
3.1 Credit Spreads protect current profits, but are willing to part with the stock if the calls are assigned

3.2 Debit Spreads Decay Characteristics: Time decay is mostly offset with this position

Max Risk: Limited to the current stock price minus the strike of the put plus the net
3.3 Neutral Strategies debit paid, or minus the net credit received

3.4 ITM Options Max Reward: Capped to credit received plus any potential gains from share
assignment

3.5 OTM Options

3.6 Trade the Underlying Strategy:

• Covered Call (Income) • Use this strategy when you want to protect profits in the underlying ahead of earnings

• Use this strategy to lower the cost of protecting profits

• Protective Put (Hedge) • Use this strategy after you’ve enjoyed a profitable move and are okay with selling
• Collar (HEDGE) should the sold strike price be reached and assigned

• Buy shares/contracts and sell calls at the same time to lower cost (“Buy/Write”)
 TRADE THE UNDERLYING
COLLAR (HEDGE)
The objective of using a Collar strategy is to protect a
position in the underlying by buying puts ahead of news
or earnings, while selling calls to help offset the cost of Sell 4 Call
the bought puts. You must be okay with selling your
shares in the underlying if the calls are exercised.

EXECUTION: You’re long shares in the underlying

from $3/share and want to protect the position by
buying the OTM 3 put ahead of earnings in 9 days,
but will also sell the OTM 4 call to reduce cost
Long 1000

Buy 3 Put
Shares from 3
EXAMPLE:
— Long 1000 shares @ 3.00

— Buy 3 Aug Weekly (9) 3 Put for 0.30

(10 contracts)

TIPS: — Sell 3 Aug Weekly (9) 4 Call for 0.15

— Buy a Collar ahead of earnings, but look to buy the (10 contracts)

option 5 to 10 days ahead of earnings, as options will — Net Debit: 0.15 (1000 x .15 = $150)

become more expensive as implied volatility increases — Max Risk: 0.15 - (3.13 - 3) = .02
the closer earnings gets
(1000 x .02 = $20)

— You can buy the underlying shares, buy the puts, — Max Reward: 1.00 (4 - 3) - 0.15 = .85
and sell the calls all in one transaction to protect the (1000 x .85 = $850)
underlying at the outset of the trade and to lower cost
 TRADE THE UNDERLYING
COLLAR (HEDGE)
The Collar strategy offers a great way to protect a long
position in the underlying ahead of news or earnings,
while looking to lower costs by selling the OTM call. Sell 4 Call
Add the sold call to a Protective Put to create the
Collar when you are okay with selling your position in
EXAMPLE:
the underlying should the sold calls be exercised.
— Long Shares: 1000 shares x .84 (3 - 2.16) = $840 loss

— Value of 3 Aug 3 Put (at expiration): 0.84

— Value of 3 Aug 4 Put (at expiration): 0.00

— Net Gain: 0.84 - 0.15 = .69 (.69 x 10 contracts = $690 gain)

Long 1000

Buy 3 Put
Shares from 3

Failed Absorption: Price drops through

the absorption zone and sells off ahead of
earnings, and then gaps down on the
earnings announcement, closing the week
84 cents below the $3 strike. By buying
TIPS:
the put, you are able to offset most of the
— You can allow the 4 call to expire worthless and allow the put option to
losses in the underlying, and by selling
expire ITM and collect the gains to offset the decline in the underlying

the 4 call you were able to further offset

— You can choose to exercise the put option at the $3 strike, which allows
the loss by receiving the credit.
you to sell your 1000 shares at $3/share, while collecting .15 on the sold 4 call

— If price were to have closed above $3, you can choose to allow the put
option to expire worthless to avoid paying commission on the exit
 PRESENTS

SWING TRADE PRO 2.0

THE 5-STEP SWING TRADING BLUEPRINT
STEP 3: STRATEGY TOOLKIT