so one of our YouTube followers came up
with a great trade idea for an options
trade in Google with a huge range over
which a really nice profit can be made
I’m the head trader of SMB capitals
options trading desk here in midtown
Manhattan and the options traders on our
desk are constantly seeking outstanding
setups like the one that I’ll be
breaking down for you in this video this
trade has a statistical 84 percent
probability of profit for a very nice
return over an extremely wide range of
Google prices I’ll show you how this
trader set things up to really stack the
odds in his favor and the trade is
pretty easy to understand so stick
around I think you’re gonna find this
eye-opening
[Music] hi I’m Seth Freiburg and I’m the head
trader of SMB capitals options trading
desk SMB capital is a proprietary
trading firm located in midtown
Manhattan and we provide capital for
options and equity traders from all over
the world trading both remotely and in
our offices here in New York City now
I’d like to suggest that you click on
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videos that we produce for traders and
investors all over the world they’re
really very valuable ok so we did a
video about a month ago where we went
through a campaign of options trades
known as iron condors where we tracked
Amazon stock throughout this year
showing how we could have setup every 60
days throughout the year a two month
long trade that could have
hypothetically produced over a 50%
return if methodically traded throughout
the year at the end of the video I guess
traders to suggest similar trades for
stocks that the viewers followed and we
track a few of them to see how they’d
actually turn out and we got some really
interesting ideas in so Scott summer had
suggested that we take a look at the
following trade which is known as an
iron Condor in Google for the December
monthly expiration which takes place on
December 20th now let’s break down what
Scott is suggesting here and we’ll take
a look at the risks and rewards and her
in the trade so you can get a feel for
what he’s actually suggesting so on the
day that Scott is suggesting we entered
the trade which was October 25th 57 days
before the expiration of these options
Google was trading at 12 66 at that time
as you can see Google was trading up
around its all-time intraday high which
was 1289 back in May
so here’s exactly what Scott is
suggesting he’s looking for us to sell
two of the 1,400 Google calls and buy as
protection 2 of the 1520 Google calls
then he was suggesting that we slide all
the way down to the Google 1100 puts and
sell 2 of those and then as protection
by two of the 980 puts that combination
of a short call closer to the money
protected by a long call farther from
the money combined with a short put
closer to the money and a long put
farther from them
that entire combination is what is known
as an iron condor two options income
traders now from a cash flow standpoint
you can see that the 1520 calls cost $76
because as you know each call represents
100 shares of stock so the calculation
is 2 times 100 times the cost of the
call which comes to 76 dollars with
similar math you can see that we
received 962 dollars for selling the to
1,400 calls we also received 1028
dollars for selling the to 1100 puts and
finally we had to pay two hundred twenty
dollars to buy the two protective 980
puts so as you can see overall the trade
produces a little under 1700 dollars of
income which was close to the range of
pricing that Scot had suggested for the
trade now let’s take a look at the
underlying logic of the trade now as you
probably know a call option entitles you
to the right to buy 100 shares at the
strike price of a call option at any
time before it expires and a put option
entitles you to sell 100 shares of the
stock at that puts a strike price at any
time before the option expires so in the
case of the two options we sold the 1400
and the 1100 unless Google gets to 1,400
or below 11 under those options will
have no value on expiration date so what
that means is that as long as Google
stays between 1100 and 1400 between
trade entry and when the options expire
then all of the options in the iron
Condor will expire worthless why let’s
think about it exactly who is going to
exercise a 1400 call that we sold them
if Google is trading at less than 1400
no one is going to buy shares from you
for more than they’re trading at in the
open market so the 1400 call you sold
them has no value yet you were paid cash
for that call the same is obviously true
of the 1520 call which you bought as
protection that goes out worthless also
now conversely if Google is trading
somewhere above 1100 then no one’s going
to exercise those puts and sell you
their shares at Google at lower than
they’re selling in the open market
so those options are obviously also
worthless and for that same reason the
long nine eighty options are also
worthless on expiration so all four
options expire worthless and therefore
you just get to keep the cash that you
got in the beginning of the trade a
little less than $1,700 in other words
so essentially what Scott was suggesting
was that it’s reasonable to think that
somewhere around Google’s all-time highs
might act as resistance for Google and
so the 1,400 call we sold is unli less
unlikely to do anything but expire
worthless because at that time 1400 was
more than 100 points above the all-time
highs and similarly he made the judgment
that since Google has not been down
through the 1100 level since early
summer that it has a reasonable bet that
the 1100 puts we sold will also expire
worthless so that’s the underlying logic
of the trade and the technical analysis
the Scot made in formulating his
suggested trade now before you run
through exactly how a professional
trader would have handled this iron
Condor options trade and how the trade
turned out I wanted to mention that
we’re currently running a 2 our free
intensive workshop at the moment where
we’ll be teaching you 3 real-world
option strategies that professional
traders use including a really simple
but incredibly effective strategy that
some of the greatest investors in the
world like Warren Buffett used all the
time plus an options trading strategy
that has a statistical 80 percent
probability of profit month and in month
out plus an option strategy that you can
employ with the stock that you like
where you’ll make your target profit
whether the stock goes up goes nowhere
or even goes down a small percentage
then you should check out the free
options class that we’re currently
running just go ahead and click the link
that should be appearing now at the top
right hand corner of the screen that
will open the free registration page in
a new window so don’t worry you won’t
lose this video or you can just head
over to options class com to register
for this free intensive workshop it is a
rare opportunity for retail traders and
investors to learn directly from Wall
Street traders but that’s exactly what
you’ll be getting through this free
online workshop so click the link to
sign up now and though
so let’s now take a look at what
happened on this trade and how a
professional trader would have handled
it so we’ll move over to November 7th
and you’ll see that Google has blasted
through its all-time high and is now
trading at thirteen twenty two now I
want you to focus on the short puts at
1100 and the long puts at 980 that
combination when we first sold them as
the put side of the iron Condor sold for
four dollars and four cents why do I say
that because we received five hours and
fourteen cents for the 1100 foot and we
paid out a dollar ten for the 980 puts
so the net effect of that was to receive
four dollars and four cents at the
outside of the trade so the short put
and the long put combined is called a
put spread and as you can see the value
of that spread has shrunk down to 56
cents on November 7th because the short
put at 1100 has shrunk down in value
immensely and the long put has also but
at a slower pace because it wasn’t worth
that much in the first place and it has
done that because the stock has rallied
so the market is giving less and less
value to all the puts so what that means
and is that I can close that side of the
trade for 86% less than I was paid for
it so a professional trader like the
guys on our desk here they see that and
they say to themselves okay look I was
paid four dollars and fourteen cents for
that spread originally and I have that
four hundred fourteen dollars in catch
for each of those spreads that I sold on
the put side Y can now close that side
of the trade just by paying fifty six
dollars for each of those spreads so I
can net out eighty six percent of the
original credit I received and here’s
the important part I have no more
downside risk on the trade Google could
drop to any number it could drop to zero
and I would have no risk at all on the
downside of the trade because if I did
not close that side of the trade and by
expiration day Google for some reason
had a huge sell-off to say 1075 thereby
dropping below a hundred I would be
forced to buy Google at 1,100 even
though they’re worth only 1075 taking a
twenty five dollar loss on each share
and I sold two of those puts
so that would be a loss of $5,000 if
that were to happen so to eliminate that
risk after squeezing 86 percent of the
value out of those put spreads the
professional trader would scalp the put
side in other words close the put side
of the trade and just pocket the profit
you see we only have to pay $112 to
close the put spread but we originally
received eight hundred eight leaving us
with a profit of 696 dollars and more
importantly from a traders point of view
no risk to the downside now if we move
forward to December third you’ll see
that Google has now sold off a bit
moving farther from that 1,400 short
call for which we’re still on the hook
if Google rallies up to 1,400 and we’d
have to buy back those shares at 1,400
when the stock is trading higher than
that so now let’s take a look at the
call side of the trade and you can
readily see that the market is assigning
very little value to the possibility of
Google getting to 1,400 in the 19 days
before there’s options expire
you see those 1,400 calls well when we
first enter the trade we were paid four
dollars and 81 cents for those well now
they’re trading for 38 cents and the 15
20 calls that we paid 38 cents for at
the beginning of the trade those are
worth 28 cents so the implications of
this is huge it means that we can buy
the call side back that call spread for
10 cents when we were originally paid
four dollars and 43 cents for them in
other words we can buy them back for
less than 3% of the value that we were
paid for the call spread originally and
that of course would end the trade
because we’ve now closed all four legs
of the iron Condor so Google can now go
to zero or to infinity and we have no
risk the trades over instead let’s tally
up what has actually taken place on this
trade so we’ve just closed the call side
for a dime and as you can see from the
calculation that leaves us with 866
dollars of profit from the call side of
the trade because our cost to close was
only $20 but our original cash received
was 886 dollars so putting it all
together we made
one hundred ninety-six dollars from
scalping the put side and with Google
selling off we were able to scale scalp
the call side for an additional eight
hundred sixty six dollars for a total
profit of over fifteen hundred dollars
simply by making the bet that Google
would not rally way past its all-time
high or sell-off down to a level that it
has not seen since early summer that
sounds like a reasonable bet to me and
it turned out very well which you’d
probably expect from a trade with an
eighty four percent probability of
profit in the first place so this video
really had two very important takeaways
the first one involved how easy it is to
set up a trade that gives you a huge
runway around the market price of a
stock you follow through the use of an
iron Condor but the far more important
to take away is that a professional
trader knows when to shut down risk when
the remaining profit potential of any
aspect of any trade is minuscule
compared to the remaining risk of the
trade with options income trading these
risk reward relationships change over
time and it’s critical to understand how
those relationships change and then to
take your profits Pro traders are
constantly thinking about risk and
reward and trades and if you want to get
to the level of a professional trader
you need to start thinking that way also
now just to remind you as I said earlier
if you enjoyed this video and learned
something valuable from it and you’d
like to learn the details of three
real-world option strategies that
professional traders use all the time
then you should check out the free
options class that we’re currently
running just go ahead and click the link
that should be appearing now at the top
right corner of your screen that will
open the free registration page in a new
window so you won’t lose this video
don’t worry
or you can just head on over to options
class comm to register for this free
intensive workshop it’s a rare
opportunity for retail traders and
investors to learn directly from Wall
Street traders but that’s exactly what
you’ll be getting through this free
online workshop so click the link to
sign up now and don’t miss it okay so
now it’s your turn if you have a stock
that you follow that you think might be
good candidate for an iron condor go
ahead and place the strike prices for
that stock in the comment section below
making sure to provide me with the
options chain expiration dates that
you’d use and if we find some
interesting trades we’ll do another
video like this one and learn some more
iron Condor management lessons that we
can share and work through together and
if you found this video helpful don’t
forget to press on the subscribe button
below because we’re constantly shooting
these videos with these kinds of
valuable trade ideas in the future and I
don’t think you want to miss them thanks