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How to make money selling put options // passive income strategies // defined risk options trading - YouTube
Channel: Tiffany Trades Options
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Hey traders, this is Tiffany with Tiffany
Trades Options I just wanted to make a
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check-in video on the IWM trade that I
put on last week. The market's been a
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little bit up and down over the last few
days. Even a little last week it started
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to go up and then Monday and Tuesday it
was going down so right now our trade is
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still about where it was when we put it
on. I also wanted to let you guys know
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that I decided to deposit another two
hundred and fifty dollars into this
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account because I think one of the key
things about investing and smart
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investing is that you're consistently
making deposits to grow your overall
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wealth. This includes growing your
capital cash balance and then your
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buying power and when you have more
buying power it provides you the
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opportunity to put on more trades. So
this channel will probably be making
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small deposits every month or so,
just so that we can show how small
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accounts will grow at a reasonable rate.
We're not gonna try to drop in thousands
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of dollars at one time unless I get a
windfall, which would be nice, but probably
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not happening anytime soon. So with that
said, I wanted to kind of go into what I
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think about when I decide to put on more
than one options position. We have a
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little bit more buying power here so I
think now would be a good opportunity to
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take the time to explore a potential new
trade and I'm gonna look in the grid and
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I'm gonna check out the high options
volume category. One thing that I do
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when I open any trade is I try to stick
with stocks that I'm familiar with and
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stocks that I wouldn't mind owning in my
own portfolio. This is typically the
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well-known companies that are in the
S&P 500 or the DOW. Companies that have
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been around for a long time and have a
good track record and a well known
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history of how they will react in the
markets. I try to stay away from sectors
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that are currently taking a beating, for
example retail and REITs, I'm probably
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gonna stay away from because I'm not
really sure what their future looks like.
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It's possible that the COVID pandemic
might result in some bankruptcies and I
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don't really know what's gonna happen in
that space so I'm gonna stay away from
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that. But, last week and this week is the
start of the earnings season and I know
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Bank of America already had their
earnings so I'm gonna take a look
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what that trade could look like here.
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Another thing that I keep in mind when
I'm potentially opening positions is I
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always try to stick with options that
have high options volume and Bank of
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America is one of those ideal candidates.
This is the e-trade options chain and
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you can see that even in the June 19th
expiration there's a ton of open
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interest on both sides of the plays. We
can even take a look at the larger chain.
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This means that Bank of America options
plays are very liquid the bids and the
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asks are very tight, which means getting
in and out will probably be pretty easy.
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Yeah, so even in even in the next week's
expiration there's still a lot of
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options activity and a lot of open
interest so this is an ideal candidate
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as well. Another thing to keep in mind
when you're putting on your positions is
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whether earnings are coming up or if
they've already happened and in this
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case Bank of America's earnings were
last week so their next earnings date
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isn't currently scheduled until sometime
in July. This is not a fixed date. This is
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just an estimate based on past history these dates will sometimes
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change as earnings get closer and
companies announced when their actual
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earnings dates will be released. Another
thing to worry about - or pay attention - to
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is whether or not the stock pays
dividends. In this case Bank of America
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does pay a dividend but its most recent
dividend has already been paid and and
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typically dividends are paid on a
quarterly basis so the next time Bank of
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America is going to issue a dividend
will probably be sometime at the end of
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June. So we're just going to keep an eye
on that it's ex-dividend
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date will probably be early june and
then it's payable date will be at
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the end of June. So taking a look at the
options expirations the June 19th
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expiration is 58 days away which is an
ideal position within our 30 to 60 day
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window
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Right now Bank of America is trading at
$21.80. If we were gonna sell just a naked
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put in Bank of America at the 21 strike on June 19th the total credit
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that we could collect as 1.84 or the
equivalent of one hundred and eighty
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four dollars. Reviewing this trade though
we know that if we put this
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position on it will reduce our buying
power by three hundred and fifty six
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dollars and sixty-five cents. That's
about half of the remaining buying power
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that's in the account right now which is
not great. You want to leave some room in
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case you need to manage your positions
at a later time and by manage at a
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later time I mean if the positions move
against you and you need to roll out and
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roll down for credit or even just widen
the strikes a little bit you just want
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to leave buying power room as an option for
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you. Additionally if we examine the profit
loss probabilities the max profit that
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we can make on this trade as a naked put
would be a hundred and eighty four
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dollars, but if Bank of America traded
against us and fell below the twenty one
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strike then the max loss is potentially
one thousand nine hundred and sixteen
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dollars which would essentially be
twenty one minus one hundred and eighty
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four. So instead of selling a naked put in this position I'm gonna go
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back to the defined risk strategy I'm
gonna explore selling a credit spread
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but just a little bit wider so that we
can maintain a little bit more credit
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collected then we have in the past,
while also still protecting ourselves in
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case the trade moves against us. So if we
did a three dollar wide credit spread
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which would be 21-18
the total credit collected would be
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about a hundred dollars. This is about
one third of the widths of the strikes. If
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you wanted to ensure a greater
probability of success you can move the
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strikes down, but notice that you'll
collect less credit. Looking at Bank of
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America's chart we know that is
currently experiencing some lows
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compared to the last couple years.
Examining it a little bit closer, Bank of
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America has been hangin'
around the 20 looks like 24-25 range so
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I feel pretty comfortable selling a put
credit spread of the 21 strike in the 18
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strike. Reviewing the trade we will notice
that the buying power reduction is
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almost cut in half to $205.29 that leaves us plenty
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of room to manage both the IWM trade and
the Bank of America trade if we need to.
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The max profit on this trade would be
$97, the max loss will be $203
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which means it's the width
of the strikes minus the credit
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collected which is two hundred and three
dollars. If you're wondering why I stick
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mostly to put spreads it's because I think
that the market generally tends to trend
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upwards. We know that we've recently had the COVID pandemic financial scare and a
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lot of the markets sold off, but I think
more often than not
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people are generally interested in
investing and are bullish.
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I don't really anticipate Bank of
America going really any lower than this.
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I don't really want to sell a call
credit spread because it's possible that
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Bank of America might shoot up next week
and we don't really know, so I prefer to
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sell put credit spreads because I
wouldn't mind owning Bank of America if
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it was assigned to me and then if that
happened then I could just sell a call
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against it and perform the wheel
strategy which if that does happen on
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this channel I'd be happy to demonstrate
that as well. So I'm gonna go ahead and
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send this order I'm gonna go back real
quick. Alright so the midpoint is now
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about .95 if we hold on to this trade
until expiration the probability of
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profit is 57%. I feel pretty comfortable
with this so I'm just gonna go ahead and
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send. I'm gonna go ahead and watch this
trade for now I need to push pause on
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the video recorder because I actually
have to take a conference call for my
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day job but I will certainly report back
if these this gets filled before the end
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of the day... Alright so we've been sitting
on this trade for a little over half an
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hour now and it still hasn't been filled.
It looks like the midpoint has been
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going down a little bit, let's
just check the bids and the asks. So
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earlier when I looked at this the asked
was 97 cents the midpoint was 95 cents
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and the bid was about 93- 94 cents and
now it's like the midpoint is .94 I'm
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just gonna go down only 2 cents and see
what happens.
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I didn't get filled at 93 cents so I'm
gonna go down to 92 cents which is only
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a three dollar difference off of what
our original trade setup was it's not a
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huge deal ... oh! never mind!
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Alright, so patience paid off. The trade
was filled at 93 cents which is only two
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dollars difference from when we first
started. So we'll take a look at the
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working order which was shows a 93 cent
fill. The history shows the fees
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associated with it and now we have two
positions in our portfolio. Bank of
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America's trading it $21.81 right now, our
short strike is 21 the long strike is 18.
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This is a three dollar wide strike. The
expiration is 58 days away. IWM's
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expiration is 30 days away so we're
gonna watch both
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of these trades over the next couple of
weeks and when I manage them I will
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report back and let you guys know how
they went. And as always if
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you've made it this far I just want to
say thank you very much for watching
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please, please, please if you like the
content like, leave a comment, and
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subscribe! If you have any questions
leave them in the comments below send me
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an email. If you're looking for any trade
ideas or trade strategies I'd be so
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happy to help, and if it's not through
one of my videos I'd be happy to refer
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you to some free resources. Otherwise
thanks a lot for watching and I will be
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talking with you guys soon - Bye!
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