Ebook Profit Accelerator - Weekly Money Maker

20/11/2018 Ebook Profit Accelerator - Weekly Money Maker
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Option Basics
In a letter to shareholders in 2002, Warren Buffett infamously said, “In our
view, however, derivatives are nancial weapons of mass destruction,
carrying dangers that, while now latent, are potentially lethal.” Derivatives
often have a negative connotation and many think they are just tools for
speculation with a high degree of leverage invented by mathematicians.
However, I don’t think that’s the case if you know how to use them
properly.
Heck, derivatives have been around before all this fancy math and
technology. The rst reference to a derivative-like security dates back to
Genesis 29. That’s right, derivatives have actually been around for
thousands of years, whether traders like it or not.
In this guide, we will be discussing options and how to use them to your
advantage while lever- aging your capital.
First things rst, we need to de ne options.
Options Explained
An option contract in the nance world is ultimately just an option to buy
or sell an underlying asset, which could be a stock, index, futures or
commodities. Here, we will be sticking with stock options because it’s our
community’s bread and butter. Quite simply, an option contract is just a
choice about whether you want to do something or not, it’s not different
than any other options we have in life.
A call option gives you the right to purchase the underlying stock at the
speci ed strike price, on or before the expiration date. On the other hand,
a put option gives you the right to sell the underlying stock at the strike
price on or before the expiration date. When trading call or put options on
the long side, you pay a premium to receive the right to buy or sell 100
shares of the underlying asset, and you’re not obligated to do so. That said,
the amount of premium you paid is the maximum amount you could lose.
The underlying stock is simply the product to which the option
The strike price is the price at which you would buy or sell the
The expiration date is the date that the option would stop trading.
American options could be exercised at any date before or up to the
expiration American options have nothing to do with the geographic
location because they could be traded all across the world.
On the other hand, if you short options, you would receive a premium for
taking on the risk. If you sell short, or write, a call option, you are obligated
to sell shares of the underlying stock if the call option holder exercises the
option, or if the option expires in the money. If you write a put option, you
are obligated to purchase shares of the underlying stock, if the put option
expires in the money or the holder exercises the option.
Here are some examples of options:
AAPL Feb 16 2018 170 Call

If you owned the call option, you would have to right to buy 100 shares
of AAPL at $170 per share, on or before the expiration
SBUX Feb 16 2018 58 Put

If you owned these SBUX put options, you would have the right to sell
100 shares at $58 per share, on or before the expiration
Moving on, let’s see how options are priced.
Options Pricing
There are a plethora of option pricing models out there, and we won’t go
over them at all since we’re sticking to the basics. Options pricing models
involve heavy math, and I don’t think it’s necessary to overwhelm you with
all that information when you’re just starting out.
However, you do need to understand what factors affect option premium.
There are three major factors affecting option prices:
The underlying stock’s price
Time to expiration date
Volatility
The two “less” important factors affecting options prices:
Short-term interest rates
Dividends
Keep in mind that interest rates would matter in a rising rate environment.
Underlying Stock’s Price
Again the underlying stock’s price movements affect option premiums.
For call options, when the underlying price rises, the premium should
follow suit. Conversely, as the underlying price rises, put option premiums
fall. When the underlying price falls, call option premiums would fall, while
put option premiums would rise.
Time Value and Expiration

Typically, when there is a lot of time remaining until the option’s expiration
date, the premium would be higher. In other words, an option with two
months until expiration would have a higher premium than one with one
week until expiration.
Volatility
Volatility is the underlying stock’s tendency to uctuate in price. In other
words, volatility re ects the price change’s magnitude and does not have a
bias toward price movement in one direction or another.
The higher the volatility, the higher the option premium. The lower the
volatility, the lower the premium.
Interest Rates
Generally, interest rates do not affect premiums as much as the time value,
the underlying stock price and volatility. However, in a highly volatile
interest rate environment, rates matter. An increase in interest rates
typically increases call prices and decreases put prices, based on the
famous Black-Scholes pricing model (we won’t get into the details of the
options pricing model).
Dividends
Options are often priced assuming they would only be exercised on the
expiration date. That means if a stock issues a dividend, the call options
could be discounted by as much as the dividend amount. However, put
options would be more expensive since the stock price should drop by the
dividend amount after the ex-dividend date.
Now that we understand the basics of the factors affecting option

premiums, let’s move onto intrinsic and extrinsic value.
Intrinsic and Extrinsic Value
An option’s value is comprised of two components: intrinsic and extrinsic

value.
The intrinsic value simply tells us the amount an option should be worth,
when comparing the underlying stock’s price and strike price. Let’s assume
Apple (AAPL) is trading at $170, and you own $160 call options. The options
give you the right to buy the stock at $160, and therefore, the calls should
be worth at least $10 a piece, or $1K per contract.
If the call options were trading under $10, it would be possible for traders to
buy the call, immediately exercise the call to buy the stock for a net price
below the current trading price. This is known as a risk-free arbitrage pro t,
which cannot exist in the market, at least for a long time.
Arbitrageurs tend to eat those pro ts before you even get a chance to do
any of that.
Now, if an option has not expired yet, it also has extrinsic value. The
extrinsic value is an option value’s component, re ecting the fact the
option has optionality. For example, let’s continue with our AAPL option
example. If AAPL is trading at $170, the $160 put options do not have any
intrinsic value.
You de nitely do not want to exercise the option to sell AAPL shares at $160
when they’re trading at $170, that’s an instant loss. However, if the puts
have enough time until its expiration date, it could still have some value.
This is because there is some probability that AAPL could trade down to
$150, and the puts would become in-the-money (ITM) and have intrinsic
value of $10.
In-the-money, out-of-the-money and at-the-money just re ect an

option’s moneyness in relation to its strike price. For example, if a stock
is trading at $50, the $40 strike price Options Pro t Accelerator 7 call
options would be considered in-the-money, while the $40 strike price
call options would be considered out-of-the-money. Moreover, the $50
call and put options would be considered at-the-money.
In short, extrinsic value re ects the value of owning the option because its
intrinsic value could rise in the future.
This brings us to the put-call parity.
Put-Call Parity
Put-call parity is a highly important relationship between puts and calls.
Fundamentally, puts and calls are the same thing. Put-call parity applies to
only put and call options with the same strike price and expiration date.
Let’s take a look at call and put option payoff diagrams to understand this
important detail.
Here is an example of a put option payoff diagram:
The red is the option payoff, or pro t-and-loss, diagram at the expiration
date, while the blue line is the current option price given different
scenarios where the underlying is trading.
Similarly, here’s an example of a call option diagram:
Everything is exactly the same here. Same underlying, expiration date,

volatility and interest rates.
Take a look at the symmetry of the option payoff diagrams above. If the
underlying stock is trading at $120, the calls have $20 of intrinsic value,
while the puts will have no intrinsic value. Conversely, if the underlying
stock is trading at $80, the put options would have $20 of intrinsic value,
while the call options would be “worthless”.
The beauty about options is you could synthetically create various

strategies with different call and put options. Now, it’s possible to
synthetically create a similar payoff pro le of the $100 call options, using
the $100 puts and the underlying stock. All you need to do is simply hedge
the $100 strike price puts with the underlying stock, and let’s assume the
stock is at $100. Here, we would create a synthetic $100 call option. The
same could be done to create put options with calls and the underlying
stock.
Again, this is a very important detail for option traders. Quite simply, the
only difference in a call’s value and a put’s value with the same strike price
and expiration date is the intrinsic value. If you recall, intrinsic value is the
value that an in-the-money option must have by being ITM. That means an
option must be worth as much as the difference between the strike price
and the underlying stock price. For call options, its the maximum of 0 and
the underlying stock price minus the strike price. For put options, its the
maximum of 0 and the strike price minus the underlying stock price.
Remember when we said an option’s value has two components? Well, the
extrinsic value is the remainder of the option’s value once you’ve gured
out the extrinsic value. Due to the put-call parity, put and call options with
the same strike, expiration and volatility should be worth the same, in
terms of extrinsic value.
What’s Next
Now that we’ve got the basics of options down, you’re well on your way to
learn how to use options and some basic strategies. I know, this is a lot at
rst, but once you’ve got the basics down, it’ll be a lot easier. You might
need to go back a few times to review this before you move onto the next
section of the guide.
Ways to Trade
Options
If you recall from our rst section, options allow you to be creative with
trading. Options are one of the most exible asset classes in the market
because you could accurately re ect your view on the market.
For example, if you are bullish on a stock that is optionable, or has options,
you could place a directional bet. The same is true when you’re bearish or
neutral. Moreover, if you expect a stock to move a lot, you could place a
volatility strategy. You could also use options to hedge your stock. The
possibilities are pretty much “endless”.
Now, let’s take a look at ways to use options.
Using Options for Directional Trading

Options could be used to gain exposure to the price movements of the
underlying stock. This is known as directionally trading options and it’s
what we’re all about. For example, if you are bullish on a stock and think it
could rise by $10, you could buy some call options to pro t from a move up
in the underlying stock.
For example, let’s assume you think a stock could rise by $10 in one month,
and the underlying stock is trading at $50. You go out and purchase one
$50 strike price call option expiring next month for $1.59. Since stock
options have a multiplier of $100, your risk would just be $1.59.
Well, here’s how your PnL would look at expiration:
Well, if you look at the chart above, if your option rises to $60 before the
expiration date, it would be worth at least $10 (or $60 minus the strike
price, here it’s $50). If it stays above $60 and the options expire, you would
automatically be exercised since the options expired in-the-money and you
would be long 100 shares of the underlying stock at $50 and essentially,
you could sell them at $60 (assuming the stock doesn’t gap up or down
hard overnight).
Another way you could express your bullish opinion on the stock would be
to write put options. Now, this is highly dangerous and I don’t suggest
beginners go out and do this even if they think the stock is going to the
moon. When you naked write, or short options, you have a high degree of
risk. What happens if the company goes bankrupt? Well, those put options
would be really expensive and you’ll have to give that money to your
broker.
Let’s assume you short one $50 strike price put option with the same
expiration date and collect $159 in premium. Here’s a look at the short put
option pro t and loss (PnL) at expiration:
Just look at that, the risk-reward isn’t there. It does not make sense to
collect $159 to potentially lose $5K, or ($50 * 100), in the worst case.
Now, you could also express your bearish opinion on a stock with put
options. Let’s say you notice a negative press release in a stock and think it
could fall 10% in 1 week. Assume the stock is trading at $100 when this press
release came out, and you were able to buy the $100 put options expiring
next week for $1.65, or $165 per contract.
Here’s how your PnL would look at expiration:
Well, if the stock does fall to $90 before expiration, the put option contract
would be worth at least $10. You would pocket $8.65, or $10 less $1.65 (what
you paid for the options), if you’re able to sell them before expiration for
just the intrinsic value. This is assuming there’s no extrinsic value left at all.
Hedging Your Stocks

You could also use options to hedge your stock position. For example, if you
are long stock, but are afraid of a short-term fall, you could hedge your
stock position by purchasing put options. If you think the stock will rise
over the long term, but sell out of your position, you’ll probably end up
kicking yourself if the stock drops 2% then rises 10% in a month. Think of
this as insurance. You could protect your stock position over the short term
but still take part if the stock rises over the long term.
If the underlying stock price rises, you would pro t by owning the stock,
but you would lose the premium paid for the put. That said, could be used
to alter your risk pro le of a stock or portfolio to t your needs.
Remember the call option PnL diagram at expiration? Well, here’s how
your position would look if you’re long 1 put option with a strike price of
$100 and 100 shares of the underlying:
Keep in mind you would multiply the scale by 100. Now, if the stock falls
signi cantly, you would be protected. The blue straight line is your stock
position, and the other plot is your long stock and put position at
expiration. This is known as a married put, and it looks pretty similar to the
call option payoff diagram right? Well, in essence, it is. You’re long the stock
and if it rises you’ll pro t, but if the stock price falls, you’re hedged and
could exercise your option and your maximum loss is premium paid.
Writing Options to Generate Income
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Remember, you could also short options to collect premium, or generate

income. Again, I don’t think this is useful for beginning option traders
because it’s extremely risky, if you’re not hedged, but it’s worth going over.
This strategy hinges on the fact some options have extrinsic value, which
will be gone by the time the options expire. So, the idea here is that by
selling options, the fall in value, also known as time decay, could be
captured for a pro t. Even though the extrinsic value will fall as the option
gets closer to its expiration, or maturity, date, the intrinsic value could still
rise.
Let’s take a look at an example. We’ll go over the covered call strategy here.
A covered call strategy is comprised of a long stock position and a short call
position.
Now, if you own a stock, you could enhance your returns by selling out-of-
the-money call options on the underlying stock. If the stock price falls, you
would lose money, but the calls will expire worthless and you would
minimize your losses because you collected that premium.
On the ip side, if the stock rallies and continues to make highs, you would
pro t from the rise in the stock’s value. However, you would lose money on
the short call position. Theoretically, a call option as unlimited upside
potential because we simply don’t know where the stock could go. Since
you are hedged with the position, if you are exercised on those options, you
would still pro t, which would be equivalent to the strike price of the call
option less the purchase price of the stock. There’s a tradeoff here. What if
the stock is in buyout talks and it rises 40%, well your upside is limited. You
maximum loss would be limited to the price you paid for the stock less the
premium you received, if the stock starts to drop below the strike. That
said, I think you should stick to directional trading and we’ll discuss this in
How to Capture 100% Pro ts on Small Moves in Stocks.
Trading Volatility with Options

One of the primary reasons to trade options is to gain exposure to or
protect your position against volatility. If you recall from the section on
Basic Option Strategies, one of the three essential components of an
option’s price is the underlying stock’s volatility. Now, you might be
wondering why would anyone want to “trade” volatility?
Well, volatility is often viewed as an asset class. There are various derivatives
allowing traders to gain exposure to volatility, such as variance and
volatility swaps. Since volatility impacts nearly all trading strategies, it’s
become important to traders to manage that risk or capitalize on changes
in the level of volatility.
Volatility is one of the most important factors of an option’s value, and we’ll
leave you with a simple strategy.
Let’s assume you think a stock is going to move signi cantly after its
earnings announcement, but you don’t know in which direction. Well, you
could put a straddle on, which is a play on volatility.
For example, if the underlying stock is trading at $100 and it’s reporting its
quarterly earnings this week, you could put on a straddle. You could do this
by simply purchasing at-the-money call and put options.
Here’s how your PnL would look at expiration:
Take note that the red line is just what the strategy would currently be
worth, while the blue line is the option’s value on the expiration date.
It’s pretty clear that you could make money if the stock moves a lot in
either direction.
There are various ways to use options, but when you’re rst starting out, I
think you should only place directional bets. When you start getting the
hang of things and pro ting, then you could move onto hedging your
stock or placing volatility trades. Now, in the next section, Understanding
Implied Volatility, we’re going to go over implied volatility, which is one
factor beginning option traders have a tough time grasping. Again, options
may seem tedious at rst, so you’ll need to continue studying this guide to
understand the way options really work, and this could help you with your
trading success.
Implied Volatility
Explained
Implied volatility originates from the options market. Typically, with stocks,
you just have realized, or historical volatility. In other words, how much a
stock has moved historically, in percentage terms.
Recall that there are several factors affecting an option’s price including:
the underlying stock’s current price in relation to the strike price and time
to maturity. The others (dividends and interest rates) are not as important.
Another important factor is the expected volatility of the underlying stock
over the option’s life.
Now, for an out-of-the-money option to be worth anything, there has to be

some probability that it could expire in-the-money. Otherwise, there’s no
point to trade options minus the fact that they help to leverage your
capital. That said, the underlying stock needs to have some price volatility.
That means, the stock’s price needs to move in order for the option to
become valuable.
Now, the more volatile the stock, the more valuable the option will be. No
matter what type of option, whether it be a call or a put option. Think of
tech or healthcare stocks. If you have seen these stocks in action, you’ll
know that they move a lot. Therefore, options on those types of stocks
would be more expensive because there is a higher probability they could
expire in the money.
This is a bit tedious to understand at rst, but it’ll make sense once you
read it a few times. Since you can uniquely identify an option’s value with
one level of expected, or implied, volatility, the option value inherently
implies the expected volatility level. Now, we won’t get into the
mathematics of options pricing model because it involves working
knowledge of stochastic differential equations, probability and partial
differential equations. We’ll leave that to the math geniuses at the NYU
Courant School of Mathematics or Columbia’s Financial Engineering
Department.
Getting back on track, in order to calculate an option’s value, the factors

affecting an option’s price is plugged into the model. You would need to
work in reverse and start with the option value and all the other factors
except the expected volatility. All you would need to do is rearrange the
formula and make the expected volatility level the point. Good thing we
have trading platforms that do all that for you. Again, you don’t need to do
any maths to nd the implied volatility.
That said, let’s skip over how implied volatility is actually calculated and
look at how to interpret implied volatility gures.
Interpreting Implied Volatility Figures

Take out all the math, and implied volatility numbers are intuitive. Let’s
make this easy to understand.
One way to interpret implied volatility is by looking at expected standard

deviation in the underlying stock price for the upcoming year. Now,
standard deviation is simply the dispersion of a set of data points, here it’s
just the stock prices.
For example, assume an at-the-money option expiring in one year on a

stock has an implied volatility of 40%. You could interpret this as: Over the
next year, the option market expects the stock to move 40% in either
direction.
There are a lot of assumptions behind the implied volatility. In the example,
we use an option expiring in one year. Well, you might be wondering, Could
I use the the implied volatility for one month? You can’t really do this in
practice. Sticking with the same example, the implied volatility used to
price the option, even though it’s an annualized gure, it really only relates
to the expected volatility over the option’s life. That in mind, it would not
make sense for you to use the implied volatility for one month, if the option
is expiring in one year. The one month implied volatility does not really tell
you anything about an option expiring in one year’s time.
Now, you must be careful if you’re converting an implied volatility into a

stock’s expected range one year from now. It’s possible to compare implied
volatilities across different stocks and stock indices because implied
volatility is quoted in percentage terms, and therefore, it’s indepent of the
underlying stock price or index level.
If it’s dif cult to gure out how much a stock should move per day, given
the annualized implied volatility. You could easily convert the annualized
implied volatility gure into a daily standard deviation, or implied volatility.
This is fairly common practice and I do this often too. Generally, option
traders have a good feel for how much a stock should move day-to-day, but
it’s harder to have a feel for price movements in a week, month or year. I
know, I know, this doesn’t really make sense. There’s a disconnect here.
Implied volatility is shown in annual terms, but the historical volatility

experienced in the stock is matters on a daily basis. You care about what
your PnL and the volatility level is today, not in a year.
Let’s take a look at how you could convert the annual volatility level. This is
quite simple to do.
Converting the annualized implied volatility into a daily number is simple.

All you would need to do is divide the implied volatility by the square root
of a time frame. For instance, if you want to gure out what the options
market is implying about the stock’s price movement in one month, you
would divide the annualized gure by the square root of 12, since there are
12 months in a year. For example, let’s assume the annual implied volatility
of a speci c call option contract on Facebook (FB) is 70%.
Here’s how you would calculate the monthly volatility:
F B Monthly Implied Volatility = 0.70 ÷ (√12) = 20.23%
Now, a more common conversion is from annualized to daily. We would

use 252 trading days because that’s the convention. The square root of 252
is 15.87. So dividing the annualized by 15.87 would give you a rough
estimate of the daily implied vol.
Here’s the calculation, continuing with the FB example:
F B Daily Implied Volatility = 0.70 ÷ (√252) = 4.41%
That means the options market is expecting a 4.41% move for that speci c
strike price and expiration date.
Now, if you multiply this by FB’s current stock price, it gives you a rough
estimate of FB’s daily move in terms of dollars and cents. This gives you an
idea of theoretical prices changes in the underlying stock that the options
are currently pricing in.
You could also use implied volatility as the “price” of options. In addition
to interpreting implied volatility as the underlying stock’s standard
deviation, implied volatility could be viewed as the option’s price.
Now, the implied volatility is uniquely mapped to the option value.

Remember, higher implied volatility means higher option prices, and you
could use these interchangeably. Options traders like to use implied
volatility to quote an option’s value because there’s an edge over an

option’s dollar value.
Remember, there are three main components of an option’s value, and the
underlying stock price is one of them. In dollar terms, an option’s value is
highly sensitive to the underlying stock price. This is known as an option’s
delta. Now, this is out of the scope for what we’re trying to do. But the delta
is simply an option’s sensitivity to the underlying stock price. For example,
if a call option has a delta of $0.50, for every $1 move up the option would
gain 50 cents. However, if the underlying moves down $1, then the call
would lose 50 cents.
To volatility traders, the intrinsic value is just noise, which is driven by the
underlying stock price. It really doesn’t tell them about the option’s value
that is due to the extrinsic value.
Just know that the dollar value of an option is sensitive to the price change
in the underlying. In other words, if you’re long a call option and the option
value increased, but the implied volatility remained the same, this is only
because the intrinsic value increased.
In implied volatility terms, the option value is the same. This is one
interesting and important factor to grasp. Now, if you did not know what
the underlying stock price was, you would not know if the call option price
increased due to an increase in implied volatility or if the stock price moved
up. However, if you’re at implied volatility changes, you could pinpoint
exactly why the option price changed. Keep in mind we’re assuming rates
are the same and the stock does not pay a dividend.
Since we’ve got a good idea of what implied volatility is, we’re going to look
at what affects implied volatility.
Factors Affecting Implied Volatility

Let’s take a look at three important factors that affect implied volatility.
These factors are not all independent and there could be a ripple effect if
one changes signi cantly.
The supply and demand for options.
Supply and demand affect the market and is one of the key factors
affecting prices, whether it be stocks or options. Remember, implied
volatility is one of the primary factors affecting option prices. Moreover,
implied volatility could be used to quote options prices. That said,
supply and demand will cause changes to an option’s price, and
therefore implied volatility.
If the traders want to buy options, the option would be bid up, causing
a rise in prices and implied volatility will follow suit.
Now, what drives supply and demand? Well, it’s hard to say. Supply and
demand for options could depend on trader sentiment. It could also
depend on the implied vol level.
For example, let’s assume a stock’s volatility is below the implied vol in
the options market. Assume the company is expected to make a big
announcement soon. The demand for options would be high due to
the uncertainty of what the company might say, regardless of the
current actual vol level. What if the company has a press release and
the stock price runs up after. Now, what typically happens is the
implied vol will fall sharply. We see this with earnings releases all the
time. Implied vol runs up into earnings, then wham. The vol gets
sucked out after because there’s no more uncertainty. The demand for
options falls, and there’s an oversupply of those contracts because
traders may be looking to liquidate their options.
Remember in the Ways to Trade Options section, one way to use

options would be to hedge your stock position. Now, the higher the
degree of uncertainty over the future stock price volatility, the greater
the demand for options as hedges. This leads to higher prices and
implied vol.
For example, if a stock is near all-time highs, you might see a greater
demand for puts because longs might be worried of a pull back and
bid up the put option prices.
Recent Historical Implied Volatility.
Keep in mind, implied vol is forward looking. However, this does not
mean we’re memoryless and forget about the historical volatility.
Volatility is known to cluster around certain levels. Consequently, you
could have a reasonable estimate of tomorrow’s volatility by looking at
the recent realized volatility. So it should not be surprising to you that
that implied volatility often relates to historical vol.
For example, if a stock’s price has an annual historical volatility of 25%,

and it’s done that every year, more or less, over the last decade. Then
it’s probably a good estimate that the implied vol this year would be
25%, all else being equal.
However, what happens if implied vol for a speci c options contract,

say the call options, is 60%. Well, something is up. If this is the case,
clearly someone knows something or has high expectations the stock
could run up.
Over the longer run, there’s a low probability that implied vol and
historical vol will signi cantly diverge in one direction. Now, quick and
large changes in actual vol levels should impact implied volatility.
Again, since realized vol tends to cluster, implied vol does too. That
said, implied vol is likely to resemble historic volatility Now, if you
notice large discrepancies between the two different volatilities, there
could be a trading opportunity or re ect some some new information

that could affect the underlying stock price that you might not have
seen before.
Changes in the market’s expectation of the underlying stock.
I know, I sound like a broken record, but Implied volatility re ects the
current expectation of future realized vol of the underlying stock price.
Now, these changes could be due to a number of factors. Maybe
there’s a potential press release or the market might have clues about
earnings. The greater the stock’s price sensitivity to potential news and
earnings, the higher the implied vol due to the increased uncertainty.
Take note that the traders could be wrong about implied volatility
Everyone has an opinion, but the market doesn’t care about opinions,
sometimes.
Now, some ways to trade implied vol would be:
Trading against technical levels in implied vol or moving averages
Trading implied vol ahead of corporate announcements like earnings
Implied volatility is one factor you need to understand if you’re looking to

trade options. It’s what drives the extrinsic value of option prices. Now that
we’ve gone over most of the basics of options, you’re ready for what most
of you have probably been waiting for: How to Capture 100% Pro ts on
Small Moves in Stocks. Now, make sure you understand the concepts in
this section and the previous two before moving on because it’ll be a lot
easier for you to understand how you could capture 100% pro ts on small
moves in stocks.
How to Capture 100%

Pro ts on Small
Moves in Stocks
Now, we’re going to focus on directional plays here because that’s our
bread-and-butter in our community.
First things rst, let’s look at an option’s chain for Net ix (NFLX):
Source: Yahoo Finance
Source: Yahoo Finance
We wanted to make things simple for you to do, and you can access
options chains from Yahoo Finance or Nasdaq before you start live trading
options. Options chains are the same across all platforms and data
providers. You have your strike price, the last price, the bid and ask price,
the volume traded, the open interest (how many contracts are still held)
and implied volatility.
Let’s get right into things and highlight some trades that were good for
100%.
Timing is Key, Weekly Money Multiplier

Highlights
Timing is key when you’re trading. Let’s say you think gold miners will fall
over the next few weeks, so you purchase put options in the VanEck
Vectors Gold Miners ETF (GDX).
Well, if you’re timing is off, you would lose your entire premium. This is
where technicals and market experience come into play.
Here’s a look at GDX on the hourly chart:
If you notice, there are two places I annotated the chart. One where the 13
SMA broke above the 30 SMA, which is a bullish signal. Now, I watched this
rise over the entire time and missed the move. However, I gured this was
topping out, so I purchased 200 GDX put options with a strike price of
$23.50 expiring on January 19, 2018 at 28 cents a piece (so $5,600 in
premium).
Now, I noticed my “money pattern” and believed this thing was going to
pull in hard. So with the stock trading around $23.50, I purchased at-the-
money put options, thinking it would break lower. I was looking for a quick
drop, and we got just that. The options more than doubled, and I was able
to net $5,800 on just a $5,600 investment. Not a bad trade! This all
happened within 3 days (that included weekends too). On just a small
move (around 3% or 70 cents in GDX), the options gained some intrinsic
value and went up 29 cents to 57 cents. That’s the power of options. Instead
of making 70 cents and using a lot of capital, I was able to use just $5,600
to generate 105% in pro ts, this isn’t really possible in the stock market.
Although some stocks do double, it doesn’t happen as much as it does in

the options market.
Let’s take a look at another example. Our community was watching the
small caps index in early January 2018. Our thesis was the market was
strong and small caps were going to outperform to kick off 2018.
Rather than going out and buying the iShares Russell 2000 ETF (IWM),
which would be extremely expensive, we went out and bought calls.
Here’s the email we sent out to the community:
Here’s a look at IWM on the hourly chart:
Now, we bought $154 IWM call options expiring on January 12, 2018 and
were looking for a 100% gain on these options. Why the $154 strike price?
Well, these were at-the-money and relatively cheap, and we had a feeling
this was going to spike higher. These calls were only 85 cents, so my risk
was $5,100 (and that’s if IWM fell and I wasn’t able to get out before the
expiration date for a small loss).
Well, sure enough, these doubled to $1.70 in just two days because the ETF
moved up to $155.
This wasn’t the only trade we had in IWM.
At the time, I gured the market was going to run much higher even after
we doubled up on previous options trade. There was some weakness after
IWM failed to break about $155.50. Well, I bought on that weakness.
Here’s a look at my thought process:
Well, we can’t always go for 100%. On this trade our community settled for
60%.
Now, the iShares 20+ Year Treasury Bond ETF (TLT) was also on our radar.
Here’s what our thought process was:
Take a look at the hourly chart when we got into the trade on January 17,
2018:
We gured with rates set to rise and strong economic outlook, bond prices
had a high probability of falling. To con rm our thesis, we had the 13 SMA
cross below the 30 SMA.
We took that off the table for +130%. Well, how was that possible? TLT
dropped over a point, that meant the options became more intrinsically
valuable, therefore, the stock price increased.
Now, I’m not telling you it’ll be easy to make 100% on small moves. But it’s
highly possible to make over 50% on your options trades on small
movements. It’ll take you some time an experience, but if you have a
mentor who has battle-tested strategies, well you’re able to atten the
learning curve. Things will be much easier if you have people around you to
answer questions about options. Let’s face it, options could be dif cult to
trade when you start, but when you have experience people around you,
you’ll pick up on them a lot quicker.
Bonus Section
Jeff’s Inside Secret
Traders don’t usually associate options trading with technical patterns.
However, through experience and constantly testing a key technical
indicator for entries, it’s shown to potentially generate more than 100%
returns. Now, you might be wondering, “How’s that possible?” Well, it’s
simple, you select speci c options, look for the money pattern and use
options as a directional play. With some options, all you need is a small
move in the stock price, and the options could double or even triple in a
few days.
Well, this money pattern is your friend and a powerful trading tool. First,
you’ll need to understand simple moving average crossovers. Basically, you
can take high-probability trades by mastering the 13/30 hourly-crossover
pattern. If the 13-hourly simple moving average (SMA) crosses above or
below the 30-hourly SMA, that alerts you to buy speci c options. This
pattern produces clean signals to trade with and you’re using options to
leverage the battle-tested signal.
First things rst, let’s take a look at how to set up your charts.
Indicators and Charts

If you have a brokerage platform you like to use, it should have simple
moving averages. All you need to do is set the time frame to hourly, and
plot the 13-period, 30-period and 200-period SMAs.
If you don’t have charting software, that’s ne. There are plenty of free
charting websites out there, such as TradingView, Investing.com and
Stockcharts.com.
For example, here’s a look at how I set up all my charts.
Now, if the 13-period SMA crosses above the 30-period SMA on the hourly,
it’s considered a bullish crossover. Conversely, if the 13-hourly SMA crosses
below the 30-period SMA, it’s considered bearish. That in mind, we look
to buy calls on a bullish crossover and buy puts on a bearish crossover. It’s
that simple.
Moreover, the 200-hourly SMA can give you a good idea of the longer term
trend and could act as a support or resistance level.
Next, you need to understand the basics of support and resistance. Support
is an area where a stock has had a hard time breaking below. Think of it as
a “ oor” and traders are willing to step in and buy the stock at that price.
Resistance is the exact opposite of support. Resistance is like a “ceiling”
and traders are either selling their stock or short selling it at the area. In
other words, stocks tend to bounce off of support areas and fail at
resistance.
For you to really understand the money pattern, let’s take a look at some
real trades. I actually traded these names and bought options on the
underlying stock, depending on the 13/30 hourly crossover pattern. If you
get the hang of this, it’s not rare for you to double your money, or more, in
just a few days to weeks. Don’t worry if you don’t know what support and
resistance, or if any of this isn’t clear. Once you see how these tools work in
real trades, it’s not that dif cult to spot them.
The “Money Pattern” Examples

Alarm.com Holdings Inc (ALRM) is one perfect example of how you could
multiply your money in just a short period. Here’s a look at the chart and
what we were looking at.
Here’s a look at ALRM before we bought options on the stock. You can
clearly see the $39 area was support. In other words, ALRM had a tough
time breaking below this area. That said, we were looking to buy call
options on ALRM, anticipating a move higher. Now, a higher probability
trade would have been to wait for the 13-hourly SMA to actually cross above
the 30-hourly SMA. Notice how the 13-hourly SMA (the blue line) looks like
it’s going to cross above the 30-hourly SMA (the red line). This pattern was
just starting to ash “buy”.
ALRM is a strong stock that just pulled back, and I wanted to take
advantage of it. The stock still seemed strong, and was holding up fairly
well.
Take a look at the plan above. I bought the call options expiring on June 15,
2018 on May 9, 2018 at $1.20. I was looking to add more if the calls pulled
back to the $0.80’s. Moreover, I would stop out if the options fell around
$0.60. Now, this is something you should always do when you’re trading.
Always have a plan and specify where you would buy more and stop out of
your position.
Here’s a look at what happened with ALRM.
The 13-hourly SMA crossed above the 30-hourly SMA, as shown in the
encircled area. The stock got a nice pop and had a nice move to the upside.
The options doubled and we were sitting on some nice pro ts.
That’s right, that small investment turned into $14K. If you were to do this
with stock, it would be a lot harder to see returns like this. This is due to the
fact that stocks are linear. In other words, if you’re long 1K shares of a stock
and it moves up $1, you make $1,000. However, with options, you’re able to
generate high returns with a “small” initial investment because they
provide leverage and are non-linear. If a stock runs up just a few bucks, the
call options could more than double, depending on the strike price
and expiration date.
The takeaways from this trade are:
ALRM found support around the $39 area and was a strong stock
The 13-hourly SMA looked to potentially cross above the 30-hourly SMA
Just buying at-the-money (ATM) call options was a good play. (You
should have a good understanding of moneyness, but if you don’t, ATM
just means the strike price of the options is near the stock’s current
price.)
Let’s take a look at another example of the 13/30-hourly SMA crossover in

action.
The Global X MSCI Greece ETF (GREK) was another trade that we used the
13/30-hourly SMA crossover to get in. This time, puts were involved. Rather
than shorting the exchange-trade fund (ETF), which could lead to large
unexpected losses, we bought put options. Remember, put options allow
us to express our bearish opinion on a stock or ETF. Keep in mind, when
you purchase options, the maximum you could lose is the amount of
premium paid.
GREK had a clear long signal, but I missed out on this one. It had a move
from around $9.60 to more than $10.80. This time, the 13-hourly SMA was
changing direction and looked to cross below the 30-hourly SMA. So what
do we do here? We buy puts because, again, when the 13-hourly crosses
below the 30-hourly, it signals the stock price could fall.
I wasn’t going to miss out on this trade after I saw the ETF run higher after
the buy signal. Now, it’s indicating it could fall.
I bought put options expiring on May 18, 2018 with a strike price of $11 for
just 50 cents on April 20, 2018.
Keep in mind, the ETF made a high of $10.81, and I would have stopped out
if the stock broke above that level. When you’re wrong, you have to realize
that and just cut your losses quick. The ETF did try to make a new high
above $10.81, but failed. I was close to stopping out of my position, but
luckily, GREK didn’t make a new high.
Here’s what happened with the ETF.
When the ETF started pulling in, I gured it was a good time to start taking
pro ts.
Even though I wasn’t up 100% on the options position, it was prudent to

take pro ts when the puts were up 70%. When you’re up, you should
always look to take pro ts and let the rest run, and that’s what happened
with the put options on GREK.
Take a look at what happened with the ETF.
The ETF continued to collapse and the options more than doubled!
Again, this isn’t an unusual trade in the options market. By holding onto a
portion of the position, the trade generated an additional $12K. If you
traded this ETF, you would’ve had to short around 10K shares, just to make
the same amount, which would eat up your buying power.
Moving on, let’s look at another options trade that generated a high return
with just a little bit of capital.
TripAdvisor Inc (TRIP) had an excellent breakout on strong earnings.

However, it’s best not to chase stocks. Rather, you should wait for it to
consolidate and show you a clear entry.
If you look at the chart above, you can clearly see the support area is
around the $47.60s. The stock started to trend higher after consolidating.
That in mind, this was a good time to buy call options since the trend was
rising. When this happens, you can ride the trend as long as the tide
doesn’t change.
If the stock broke below the support area, that would’ve been an indication
to sell the call options.
However, that didn’t happen. Here’s what the stock actually did.
The 13-hourly SMA crossed above the 30-hourly SMA earlier, and TRIP
started to trend higher.
In just a matter of days, the options went up over 200%.
Remember, it’s always good to take pro ts when the option prices are near
your targets. TRIP continued higher, and the stock was up 20% from when I
purchased the calls. This was a good time to take pro ts.
The options trade returned nearly 500% on a $6,500 investment. If you

wanted to do that with stock, you would have to buy around 3,000 shares,
which would’ve been over $130K just to make the same amount. Moreover,
you would have to be nearly perfect if you were trading the stock to get the
same pro ts in dollar terms.
Now, another reason to trade options is due to the fact that not everyone
has the amount of capital to trade high dollar names. For example,
Chipotle Mexican Grill Inc (CMG) was trading over $400 and just 100 shares
would’ve costed you over $40K! Here’s a look at a trade where you could
have purchased options on CMG and more than doubled your money.
Notice the fake out here. The stock gapped up and the 13-hourly SMA
crossed above the 30-hourly SMA. If you bought the stock there, you
would’ve paid up and potentially got stopped out. You need to take
into account the fakeout breakout when using this indicator. The stock
broke above resistance, only to pull in. However, it started to consolidate,
and there was no clear direction yet.
In just a matter of days, CMG found some support around the $429 area.
Thereafter, the 13-hourly SMA clearly crossed above the 30-hourly SMA and
trended higher.
Rather than buying 100 shares of the stock, which would’ve costed you
around $40,000, you could have purchase 1 call option at $8.85. 1 call option
leverages 100 shares, and was only $8,850 in premium.
Notice how the plan was clearly laid out. There were spots where I was
willing to add and a price where I would’ve stopped out. This was another
“easy” trade following the hourly-crossover indicator. CMG never broke

below $425, so I stayed in the trade.
That’s right, the options trade was good for a 216% return! That’s really hard
to do when trading the stock alone.
Final Words
Now, you should have a good idea of how to use the 13/30-hourly crossover.
However, this takes time and grit to truly understand how to use the
indicators. You’ll need to continue looking at charts and trying to nd
trades. When you’re rst starting out, it always helps to have a mentor to
guide you along the way, especially if you’re trying start trading options.
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20/11/2018 Ebook Profit Accelerator - Weekly Money Maker

First things rst, we need to de ne options.

The underlying stock is simply the product to which the option

Here are some examples of options:

AAPL Feb 16 2018 170 Call

SBUX Feb 16 2018 58 Put

Moving on, let’s see how options are priced.

However, you do need to understand what factors affect option premium.

There are three major factors affecting option prices:

The underlying stock’s price

Time to expiration date

The two “less” important factors affecting options prices:

Short-term interest rates

Underlying Stock’s Price

Again the underlying stock’s price movements affect option premiums.

Time Value and Expiration

Now that we understand the basics of the factors affecting option

Intrinsic and Extrinsic Value

An option’s value is comprised of two components: intrinsic and extrinsic

In-the-money, out-of-the-money and at-the-money just re ect an

This brings us to the put-call parity.

Here is an example of a put option payoff diagram:

Similarly, here’s an example of a call option diagram:

Everything is exactly the same here. Same underlying, expiration date,

The beauty about options is you could synthetically create various

Now, let’s take a look at ways to use options.

Using Options for Directional Trading

Well, here’s how your PnL would look at expiration:

Here’s how your PnL would look at expiration:

Hedging Your Stocks

Writing Options to Generate Income

Remember, you could also short options to collect premium, or generate

Trading Volatility with Options

Here’s how your PnL would look at expiration:

Now, for an out-of-the-money option to be worth anything, there has to be

Getting back on track, in order to calculate an option’s value, the factors

Interpreting Implied Volatility Figures

One way to interpret implied volatility is by looking at expected standard

For example, assume an at-the-money option expiring in one year on a

Now, you must be careful if you’re converting an implied volatility into a

Implied volatility is shown in annual terms, but the historical volatility

Converting the annualized implied volatility into a daily number is simple.

Here’s how you would calculate the monthly volatility:

F B Monthly Implied Volatility = 0.70 ÷ (√12) = 20.23%

Now, a more common conversion is from annualized to daily. We would

Here’s the calculation, continuing with the FB example:

F B Daily Implied Volatility = 0.70 ÷ (√252) = 4.41%

Now, the implied volatility is uniquely mapped to the option value.

volatility to quote an option’s value because there’s an edge over an

Factors Affecting Implied Volatility

The supply and demand for options.

Remember in the Ways to Trade Options section, one way to use

Recent Historical Implied Volatility.

For example, if a stock’s price has an annual historical volatility of 25%,

However, what happens if implied vol for a speci c options contract,

could be a trading opportunity or re ect some some new information

Changes in the market’s expectation of the underlying stock.

Now, some ways to trade implied vol would be:

Trading against technical levels in implied vol or moving averages

Trading implied vol ahead of corporate announcements like earnings